Arnold plc and Bunny plc agreed to establish a Joint Operation, Carlton, which started trading on…

Arnold plc and Bunny plc agreed to establish a Joint Operation, Carlton, which started trading on 1 January 20X1. Carlton is an unincorporated business, which is financed and managed by Arnold and Bunny.

Arnold agreed to provide land at an agreed price of £1,000,000 and plant at £600,000. In addition, Arnold and Bunny provided £200,000 in cash for working capital.

It was agreed that, on consolidation, the land and plant would remain in the statement of financial position of Arnold. All other assets and liabilities (except cash at the bank) of the joint operation would be divided equally between the partners. Cash at the bank would be divided so the capital of each partner was equal to their respective assets less liabilities.

The trial balance of the Joint Operation at 31 December 20X1 is given below:

The value of inventory at 31 December 20X1 was £200,000. No depreciation is to be charged on the land. Plant is to be depreciated at 5% per annum on cost. Profit for the year is to be distributed to the partners:

(i) 5% per annum on capital; then

(ii) the remaining profit is to be divided equally between Arnold and Bunny.


For the year ended 31 December 20X1, prepare an income statement and statement of financial position of the Joint Operation at the year-end.

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