On 1 July 2020 Transatlantic Ltd enters into a joint arrangement with Archtic Ltd. Both parties commit
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Question:
On 1 July 2020 Transatlantic Ltd enters into a joint arrangement with Archtic Ltd. Both parties commit themselves to a contractual arrangement in which Transatlantic Ltd contributes plant and machinery with a fair value of $30 million; Archtic Ltd contributes cash of $15 million and land with a fair value of $15 million, which is considered to be a good site for the extraction of minerals. The cash that is contributed is used partly to acquire some additional machinery at a cost of $12 million, with the remaining cash balance to meet operational requirements.
Additional information:
- The machinery contributed by Transatlantic Ltd has a carrying amount of $32 million (cost $40 million; accumulated depreciation $8 million) and a fair value of $30 million.
- The land contributed by Archtic Ltd has a carrying amount of $13 million and a fair value of $15 million.
- All current and future contributions are to be based on a 50:50 split, as are the future distributions of output.
Required:
- Prepare the journal entries that would appear in the journals of Transatlantic Ltd to record the establishment of the joint operation on 1 July 2020. You need to demonstrate the necessary explanations /descriptions with supporting calculations. [8 +5 = 13 Marks]
- Prepare the journal entries that would appear in the journals of Archtic Ltd to record the establishment of the joint operation on 1 July 2020. You need to demonstrate the necessary explanations /descriptions with supporting calculations. [7 +5 = 12 Marks]
Related Book For
International Business Law and Its Environment
ISBN: 978-0324649659
7th Edition
Authors: Richard schaffer, Filiberto agusti, Beverley earle
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