E8.1 Journal entries for interest in a joint production operation, no product di
ID: 2413580 • Letter: E
Question
E8.1 Journal entries for interest in a joint production operation, no product distributed to date Peppa Ltd and George Ltd entered into a joint operation on 1 June 20X0 to produce specialty medical equipment. Each of the joint operators initially contributed cash of $600000. A joint operation manager was appointed and provided the following details for the month of June 20X0 in respect of the operation. Plant and equipment was purchased for cash on 1 June 20X0 at a cost of $800000. The plant is expected to have a useful life of five years in joint operation production and no use or value thereafter. Cash costs of production for the month ended 30 June 20XO are $200000. All of the production remains on hand with the manager as inventory. The remaining cash on hand at 30 June 20XO is $200000. REQUIRED (a) Outline what features would need to be included in the joint operation agreement for the joint arrangement to be classified as a joint operation rather than a partnership.Explanation / Answer
These are the entries in the books of one of the joint production operator i.e. Peppa Ltd
Now, the entity initially contributed a cash of 600,000 for buying the interest in the Joint Production
Which explains the first entry
Property, Plant and Equipment was bought for a total cost of 800,000 – hence Peppa ltd’s share in actual cost = 400,000
Similarly share in cash of 200,000 = 200,000/2 = 100,000
Balancing figure is inventory i.e. 100,000
Plant has a useful life of 5 years, so monthly depreciation = 400000/60 = 6667
Charged to inventory since inventory has not been sold till date
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