Where Joint Operators Contribute Assets to a Joint Venture,the Accounting

question 18

Multiple Choice

Where joint operators contribute assets to a joint venture,the accounting treatment is which of the following?

• A) Treat the contribution as a capital investment and replace the asset with an investment account called 'advance to joint venture'.
• B) Close off the accumulated depreciation account if applicable to the asset account and remove the net book value of the other joint venturers' shares of the asset against the account 'advance to joint venture'. This leaves the venturer's own share in its own accounts.
• C) The value of the contribution is assessed at fair value, with the difference between fair value and the carrying amount being treated as a profit or loss on sale.
• D) The asset is restated to fair value and the asset revaluation reserve treated as part of the advance to the joint venture.

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Definitions:

Internal Rate of Return

The discount rate that makes the net present value (NPV) of all cash flows from a particular project equal to zero.

Cost of Capital

The rate of return a company must earn on its investment projects to maintain its market value and satisfy its shareholders.

Reinvestment Assumption

The presumption that cash flows received from an investment will be reinvested at a consistent rate over the life of the investment.

Net Present Value

A financial measure that calculates the present value of net cash flows (inflows minus outflows) from an investment, discounting future cash flows to the present.