Question

AAA and BBB formed a joint venture called CCC on January 1, 2022. Presented below are some relevant details on the establishment of this Joint Venture:

All transactions were considered to be of commercial substance.
The fiscal year end for all three entities (AAA, BBB, CCC) is December 31.
AAA contributed plant and equipment with a fair value of $600,000.
AAA's share in the venture was 30%; BBB's share is 70%.
BBB contributed assets with a book value of $1,100,000
All assets transferred had a remaining useful life of 17 years.
At the end of 2022, AAA realized a gain of $8,465 for its share of contributed plant and equipment.
Required:
Calculate the book value of plant and equipment contributed by AAA.

Answer 1

The book value of the plant and equipment contributed by AAA to the joint venture CCC is calculated to be $571,783.33 by subtracting the total gain from the fair value and adjusting it based on AAA's ownership percentage.

Step-by-step explanation:

The question asks to calculate the book value of plant and equipment contributed by AAA to the joint venture CCC. Since AAA realized a gain of $8,465 on its share of the contributed plant and equipment, which is 30% of the joint venture, this gain represents the difference between the fair value and the book value of AAA's contributed assets. Given that the fair value of the plant and equipment is $600,000, the book value can be calculated by subtracting the gain from the fair value and dividing the result by AAA's ownership percentage.

First, we calculate the amount of the gain that corresponds to AAA's 30% share:
Total gain / AAA's share = Gain assigned to AAA
$8,465 / 0.3 = $28,216.67 (total gain)

Then, we determine the book value:
Fair value - Total gain = Book value
$600,000 - $28,216.67 = $571,783.33

Hence, the book value of the plant and equipment contributed by AAA is $571,783.33.