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:

Utility Function

A mathematical representation of how different combinations of goods or services can result in varying levels of satisfaction or utility to a consumer.

Consumer's Surplus

The difference between what consumers are willing to pay for a good or service and what they actually pay, representing the benefit consumers receive from the purchase.

Earplugs

Small devices inserted into the ear canal to protect the ears from loud noises, water, or foreign bodies.

Consumer's Surplus

The difference between the total amount that consumers are willing and able to pay for a good or service versus the total amount they actually pay.