Midstream Ltd and Delta Ltd Enter into a Business Undertaking

question 39

Multiple Choice

Midstream Ltd and Delta Ltd enter into a business undertaking to lease a 100-hectare vineyard from Pinot Ltd.There is a contractual agreement between the two companies whereby they share control and must agree on all strategic financial and operating decisions.The two companies appoint Todman Management Pty Ltd as the vineyard manager.A separate set of accounting databases is established for the undertaking and each investor contributes cash capital to the undertaking and holds the assets as tenants in common.Each of the investing companies enters into a separate agreement with the vineyard manager to sell the produce of the vineyard in the market on their behalf.The business undertaking is:

• A) a joint venture operation because the investors have agreed to a sharing of control and to a sharing of the outputs of the vineyard.
• B) a joint venture entity because the undertaking has been established as a separate entity in which there is a simple sharing of control.
• C) a simple partnership in which two companies operate as partners in a business undertaking with the intention of making a profit.
• D) none of the above.

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Definitions:

Real Gross Domestic Product

An inflation-adjusted measure that reflects the value of all goods and services produced by an economy in a specific period.

Planned Investment

Expenditures intended by businesses to purchase physical capital goods, which are expected to produce future benefits.

Spending Multiplier

The ratio of change in aggregate output (or income) to a change in spending that caused the change, showing how initial spending leads to increased total spending.

Autonomous Investment

Investment that does not change in response to alterations in the overall economy or income levels, such as public infrastructure investments.