Skip to content

ACCA Strategic Professional · Strategic Business Reporting (International) · Associates and joint arrangements

Delta and Epsilon jointly operate a pipeline through an unincorporated arrangement. Delta has joint control, is entitled to 40% of the pipeline's assets, and is liable for 40% of the liabilities. The pipeline's output is shared 40:60. During the year the pipeline earned total revenue of $5,000,000, of which Delta's share is $2,000,000, and incurred total costs of $3,000,000 shared in proportion to the 40% interest. What should Delta recognise in respect of revenue and expenses for the year?

Delta recognises revenue of $2,000,000 and expenses of $1,200,000. The arrangement is a joint operation, in which Delta has rights to assets and obligations for liabilities, so it recognises its share of each item line by line rather than using the equity method or full consolidation.

  1. ARevenue $2,000,000 and expenses $1,200,000Correct
  2. BRevenue $5,000,000 and expenses $3,000,000, with a non-controlling interest of 60%
  3. CA single line 'share of profit of joint venture' of $800,000
  4. DRevenue $2,000,000 and expenses $3,000,000

Explanation

This is a joint operation, so Delta recognises its own share of each item line by line: revenue $2,000,000 and 40% x $3,000,000 = $1,200,000 of expenses. The profit is $800,000, but the equity method single line is wrong for a joint operation. Full consolidation with an NCI is wrong because there is no control.

Did you get it right without looking?

One question tells you little. A timed set on Associates and joint arrangements shows your real accuracy, how long you take and where you lose marks.

Practise Associates and joint arrangementsFree diagnostic mock

More Associates and joint arrangements questions