On 30 June 2013,Perkins Ltd,Thorpe Ltd and Hackett Ltd Entered

question 28

Multiple Choice

On 30 June 2013,Perkins Ltd,Thorpe Ltd and Hackett Ltd entered into a joint operation to produce apparel and related products for the Australian national swimming team.The joint operators equally share in output and costs.On the same date,the recorded amounts of each joint operator's contributions are as follows: $$\begin{array} { | l | r | r | r | } \hline & \begin{array} { r } \text { Perkins Ltd } \\\text { (Machinery) }\end{array} & \begin{array} { r } \text { Thorpe Ltd } \\\text { (Equipment) }\end{array} & \begin{array} { r } \text { Hackett Ltd } \\\text { (Cash) }\end{array} \\\hline \text { Historical cost } & \$ 900000 & \$ 600000 & - \\\hline \text { Accumulated depreciation } & \$ 200000 & \$ 100000 & - \\\hline \text { Agreed value } & \$ 600000 & \$ 600000 & \$ 600000 \\\hline\end{array}$$ Assume that agreed values equal recoverable amount and no revaluations have occurred.
Which of the following combinations correctly indicates the effects on the statement of financial position and statement of financial performance of Hackett Ltd,respectively,after processing the journal entries to account for this joint operation arrangement?

• A) no change; no change
• B) asset increase; profit increase
• C) asset decrease; profit decrease
• D) asset increase; profit decrease

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Definitions:

Passive Investment

An investment strategy involving minimal buying and selling actions, typically focused on long-term gains and avoiding frequent trading.

Common Stock

A type of security that represents ownership in a corporation and grants shareholders voting rights and a share in the company's profits through dividends.

Fair Value

The estimated market price of an asset or liability, reflecting the amount for which it could be exchanged or settled between knowledgeable, willing parties in an arm's length transaction.

Trading Securities

Financial securities purchased by a company, not intended for long-term investment but rather for making a profit in the near term from their sale or trade.