A 70:30 Joint Operation Was Commenced Between Two Participants

question 24

Multiple Choice

A 70:30 joint operation was commenced between two participants. Marian Limited contributed cash of $210 000, and Keyes Limited agreed to provide technical services to the joint operation over a period of three years. The fair value of the services was determined to be $90 000 and the cost to provide the services was estimated to be $81 000. Using the line-by-line method of accounting, Keyes Limited would record which of the following entries?

• A) DR Cash in JO $90 000 CR Obligation to JO $90 000
• B) DR Cash in JO $63 000 CR Obligation to JO $56 700
• CR Profit on provisions of services $ 6 300
• C) DR Cash in JO $81 000 CR Obligation to JO $81 000
• D) DR Cash in JO $81 000 DR Receivable in JO $ 9 000
• CR Obligation to JO $90 000

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Definitions:

Binding Quota

A limit on the quantity of goods that can be imported or exported over a period, which cannot be exceeded.

Japanese-Made Cars

Vehicles manufactured by automotive companies based in Japan, known for their reliability and technology.

Substitutes

Goods or services that can replace each other in use, where an increase in the price of one leads to an increase in demand for the other.

Quota Rent

The earnings that accrue to the holder of the right to import or export a product due to trade quotas.