Reference no: EM132820030

Problem - Two real estate companies, RK Developers and SV Holdings set up a separate vehicle (entity DP) for the purpose of acquiring and operating a shopping centre. The contractual arrangement between the parties establishes joint control of the activities that are conducted by entity DP.

The main feature of entity DP's legal form is that the entity, not the parties, has rights to the assets and obligations for the liabilities relating to the arrangement.

These activities include the rental of the retail units, managing the car park, maintaining the centre and its equipment, such as lifts, and building the reputation and customer base for the centre as a whole.

The terms of the contractual arrangements are such that:

Entity DP owns the shopping centre. The contractual arrangement does not specify that the parties have rights to the shopping centre.

The parties are not liable in respect of the liabilities of entity DP. If entity DP is unable to pay any of its liabilities, the liability of each to any third party will be limited to the parties' unpaid contribution.

The parties have the right to sell or pledge their interests in entity DP.

Each party receives a share of the income from the shopping centre {rental income net of operating costs) in accordance with its interests in entity DP.

Transactions of the contractual arrangement for 2016 and 2017 follow:

2016

RK and SV contributed 60 million each for a 1/2 interest in the net assets of Entity DP.

Organization expenses incurred amounted to P 600,000.

Entity DP acquired land at a cost of P12 million.

Constructed a building {shopping centre) at a cost of P90 million.

Operating expenses for the year amounted to P6 million.

Rental income collected from the tenants, P60 million.

Net income or loss is distributed to the venturers in accordance with their interest.

2017

Operating expenses (including depreciation) incurred for the year, P21 million.

Rental income collected for the year, P72 million.

Each venture received a share of the income or loss from rental income net of the operating expenses.

Required -

1. What is the interest of RK Developers in the joint venture as of December 31, 20x6?

2. What is the net income (loss) of entity DP on December 31, 20x7?

3. What is the interest of SV Holdings in the joint arrangement as of December 31, 20x7?