Step 3:
Journal entries in the records of Broome Ltd (machinery)
1 July 2013 Dr Cr
Cash in JO 1,000,000
Machinery in JO 950,000
Gain in machinery sold 50,000
Machinery sold 1,900,000
Cash in JO 3,000,000
Cash 3,000,000
30 June 2014
Machinery in JO 400,000
Supplies in JO 200,000
Work in progress in JO 1,000,000
Inventory 2,700,000
Other expenses 100,000
Accumulated depreciation in JO 280,000
Accrued wages in JO 20,000
Creditors in JO 150,000
Cash in JO 3,950,000
Accumulated depreciation in JO 10,000
Inventory 10,000
Workings:
As the JO has bought another machine in 2014 for 2,800,000 – 2,000,000 = 800,000 Machinery in JO = 800,000/2 = 400,000 (The half of the first purchased machine has been recorded)
Supplies in JO = 400,000 / 2 = 200,000 WIP in JO = 2,000,000 / 2 =1,000,000
Inventory = 4,840,000/2 + 280,000 = 2,700,000 (280,000 is the depreciation of machinery. There is $140,000 value of machinery distributed to each joint operator.
Depreciation is recorded separately in their account. $140,000*20% = $280,000) However, in Broome’s perspective, the carrying amount of the first machine is
$1,900,000 rather than 2,000,000. The accumulated depreciaiton is
[(1,900,000+800,000)/2]*20% = 270,000. Hence the depreciaiton expense should be adjusted by the last entry.
Accrued wages = 40,000 / 2 = 20,000 Creditors = 300,000 / 2 = 150,000
Cash = (100,000 / 2) – (1,000,000+3,000,000) = 3,950,000 Journal entries in records of Darwin Ltd (Cash):
1 July 2013 Dr Cr
Cash in JO 1,000,000
Machinery in JO 1,000,000
Cash 2,000,000
Cash in JO 3,000,000
Cash 3,000,000
30 June 2014
Machinery in JO 400,000
Supplies in JO 200,000
Work in progress in JO 1,000,000
Inventory 2,420,000
Other expenses 100,000
Accrued wages in JO 20,000
Creditors in JO 150,000
Cash in JO 3,950,000
Inventory 280,000
Accumulated depreciation 280,000
Inventory = 4,840,000 / 2= 2,420,000 (there is no depreciation included in Darwin’s book)
Hints: as the depreciation expense is required to record separately. For party providing machine, the cost of machine will be recorded the carrying amount recognised by this party. Then there will be an adjustment of depreciation and accumulated depreciation to decrease the total depreciation expense, as in their point of view, the depreciation is less than it recognised by joint operations. For the party providing with cash, inventory is not included the depreciation, but will recorded separately.
