On 1 July 2016, Darwin Ltd entered into a joint agreement with Broome Ltd to form an unincorporated entity to produce a new type of widget. It was agreed that each party to the agreement would share the output equally. Darwin Ltd’s initial contribution consisted of $2 000 000 cash and Broome Ltd contributed machinery that was recorded in the records of Broome Ltd at $1 900 000. During the first year of operation both parties contributed a further $3 000 000 each.
On 30 June 2017, the venture manager provided the following statements:
|
Costs Incurred For the year ended 30 June 2017 |
|
|
Wages |
$1 840 000 |
|
Supplies |
2 800 000 |
|
Overheads |
2 200 000 |
|
|
6 840 000 |
|
Cost of inventory |
(4 840 000) |
|
Work in progress at 30 June 2017 |
$ 2 000 000 |
|
Receipts and Payments for year ended 30 June 2017 |
|||||
|
Receipts: Original contributions Additional contributions |
|
|
|
$ |
2 000 000 6 000 000 |
|
|
|
|
|
|
8 000 000 |
|
Payments: Machinery (2/7/16) Wages Supplies Overheads Operating expenses |
$ |
800 000 1 800 000 3 000 000 2 100 000 200 000 |
|
|
7 900 000 |
|
Closing cash balance |
|
|
|
$ |
100 000 |
|
Assets and Liabilities at 30 June 2017 |
||
|
Assets Cash Machinery Supplies Work in progress |
$ |
100 000 2 800 000 400 000 2 000 000 |
|
Total assets |
$ |
5 300 000 |
|
Liabilities Accrued wages Creditors |
|
40 000 300 000 |
|
Total liabilities |
$ |
340 000 |
|
Net assets |
$ |
4 960 000 |
Each joint operator depreciates machinery at 20% p.a. on cost in its own records.
Required
A. Prepare the journal entries in the records of Darwin Ltd and Broome Ltd in relation to the joint operation.
B. Prepare the journal entries in the records of Broome Ltd assuming that the joint operation, not the operators, had depreciated the machinery and included that expense in the cost of inventory transferred.
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