Jisoo Limited and Lisa Pty Limited entered into a joint operation, BPink Bags Ltd, at the beginning of the financial year to produce and sell luggage. The joint operation agreement indicates the parties will share output, contributions and costs, and hold the joint operation assets as tenants in common, with the respective interests being 55% Jisoo Limited and 45% Lisa Pty Limited. Jisoo Limited contributed the plant which has a book value of $220,000 and a fair value at the date of contribution of $352,000 whilst Lisa Pty Limited contributed cash of $288,000. Jisoo Limited chose not to revalue their remaining interests in the contributed assets in their separate records. Jisoo Limited has been appointed the manager of BPink Bags Ltd and will receive an annual fee of $460,000 for performing the role. The estimated cost to of providing the services is 80% of that amount. The monthly invoice has been recognised as management fee revenue during the year. 

Required:

For each of the following three scenarios relating to Jisoo Ltd’s investment in the joint operation, state whether the accounting treatment is CORRECT or INCORRECT, and provide a brief statement explaining your answer. Explanations should be no more than one sentence long.

Using the line-by-line method, consistent with AASB 11 Joint Arrangements, Jisoo Ltd has recorded their interest in assets of the joint operation immediately after the contribution of the assets to the joint operation as: Plant $121,000; Cash $158,400. Advise Jisoo whether this is the correct accounting treatment. 3. Using the line-by-line method, consistent with AASB 11 Joint Arrangements, Jisoo Limited has recorded a debit to Management fee revenue of $460,000 in relation to the annual fee paid to them. Advise Jisoo whether this is the correct accounting treatment.

Answer rating: 100% (QA)

Scenario 1 Accounting Treatment for Jisoo Ltds Interest in Assets Accounting Tre... View the full answer