On 1 July 2016, Darwin Ltd entered into a joint agreement with Broome Ltd

| January 30, 2017

Question
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 $2 000 000 Additional contributions 6 000 000 8 000 000 Payments: Machinery (2/7/16) $?800 000 Wages 1 800 000 Supplies 3 000 000 Overheads 2 100 000 Operating expenses ??200 000 7 900 000 Closing cash balance $??100 000
Assets and Liabilities

at 30 June 2017

Assets Cash $??100 000 Machinery 2 800 000 Supplies 400 000 Work in progress 2 000 000Total assets$5 300 000Liabilities Accrued wages 40 000 Creditors ??300 000Total liabilities$??340 000Net 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.

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