On 1 July 2016, Darwin Ltd entered into a joint agreement with Broome Ltd to form an unincorporated entity to produce a new type of widget. It was agreed that each party to the agreement would share the output equally. Darwin Ltd’s initial contribution consisted of $2 000 000 cash and Broome Ltd contributed machinery that was recorded in the records of Broome Ltd at $1 900 000. During the first year of operation both parties contributed a further $3 000 000 each.

On 30 June 2017, the venture manager provided the following statements:

Costs Incurred For the year ended 30 June 2017
Wages	$1 840 000
Supplies	2 800 000
Overheads	2 200 000
	6 840 000
Cost of inventory	(4 840 000)
Work in progress at 30 June 2017	$  2 000 000

 

Receipts and Payments for year ended 30 June 2017
Receipts: Original contributions Additional contributions				$	2 000 000 6 000 000
					8 000 000
Payments: Machinery (2/7/16) Wages Supplies Overheads Operating expenses	$	800 000 1 800 000 3 000 000 2 100 000 200 000			7 900 000
Closing cash balance				$	100 000

 

Assets and Liabilities at 30 June 2017
Assets Cash Machinery Supplies Work in progress	$	100 000 2 800 000 400 000 2 000 000
Total assets	$	5 300 000
Liabilities Accrued wages Creditors		40 000 300 000
Total liabilities	$	340 000
Net assets	$	4 960 000

 

Each joint operator depreciates machinery at 20% p.a. on cost in its own records.

Required

A. Prepare the journal entries in the records of Darwin Ltd and Broome Ltd in relation to the joint operation.

B. Prepare the journal entries in the records of Broome Ltd assuming that the joint operation, not the operators, had depreciated the machinery and included that expense in the cost of inventory transferred.

Answer rating: 100% (QA)

Solution Part A JOURNAL ENTRIES IN RECORDS OF DARWIN ... View the full answer