Bush Ltd and Forest Ltd Enter into a Contractual Agreement

question 37

Multiple Choice

Bush Ltd and Forest Ltd enter into a contractual agreement to form a joint arrangement which is considered to be a joint operation on 1 July 2014.Bush Ltd is to contribute land and equipment.Forest Ltd agrees to contribute $5.1 million in cash.It is agreed that they will share output,assets and future contributions in the ratio 70: 30 (Bush/Forest) .The following information relates to the contribution by Bush Ltd:
$$\begin{array} { | l | r | r | } \hline & \begin{array} { r } \text { Book value } \\( \$ 000 ) \end{array} & \begin{array} { r } \text { Fair value (agreed) } \\( \$ 000 ) \end{array} \\\hline \text { Land } & 6000 & 6800 \\\hline \text { Equipment } & 4500 & 5100 \\\hline\end{array}$$ The following information relates to the year ending 30 June 2015:
Total cost of production of $5 000 000.These costs have been deferred in order to amortise them as production commences.
Of the total costs of production all but $1 000 000 have been paid in cash.
The joint venture manager called on the venturers to contribute a further $4 500 000 in total with each venturer contributing the appropriate portion according to their share in the joint operation.
What entries would be required to record the formation of the joint operation and the transactions for the year ended 30 June 2014?

• A) Bush Ltd's books: \(\begin{array} { | l | l | r | r | } \hline & & ( \$ 000 ) & ( \$ 000 )\\ \hline \mathrm { Dr } & Investment ~in~ JO & 3150 & \\ \hline \mathrm { Cr } & Land & & 1800 \\ \hline \mathrm { Cr } & Equipment & & 1350 \\ \hline & & & \\ \hline \mathrm { Dr } & Deferred ~costs & 3500 & \\ \hline \mathrm { Dr } & Cash & 350 & \\ \hline \mathrm { Cr } & Accounts ~payable & & 700 \\ \hline \mathrm { Cr } & Investment~ in~ JO & & 3150 \\ \hline & & & \\ \hline \end{array}\\\\ \text{Forest Ltd's books:}\\ \begin{array} { | c | l | r | r | } \hline \mathrm { Dr } & Investment~ in~ JO & 3570 & \\ \hline \mathrm { Cr } & Land & & 2040 \\ \hline \mathrm { Cr } & Equipment & & 1530 \\ \hline & & & \\ \hline \mathrm { Dr } & Deferred~ costs & 1500 & \\ \hline \mathrm { Dr } & Cash & 150 & \\ \hline \mathrm { Cr } & Accounts~ payable & & 300 \\ \hline \mathrm { Cr } & Investment ~in ~JO & & 1350 \\ \hline \end{array}\)

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Definitions:

Government Programs

Initiatives and services provided by the government to meet public needs, including healthcare, education, and social welfare.

Feminization of Poverty

The phenomenon whereby women experience poverty at rates that are disproportionately high in comparison to men, often due to lower wages, unemployment, and bearing the socio-economic costs of child-rearing and caregiving.

Federal Poverty Line

A measure of income issued annually by the Department of Health and Human Services used to determine eligibility for certain federal programs and benefits.

Wage Gap

The disparity in earnings between different groups of workers, often defined by gender, race, or age.