Practice Activity 21.4 Presence and absence of a joint arrangement

Assume that People Furniture Limited, Good Steel Limited, and Fine Glass Limited enter into a contract to produce furniture and related accessories. Furniture Steel With Glass, a newly incorporated entity, has been structured to execute the purpose of the investors. People Furniture Limited, Good Steel Limited, and Fine Glass Limited have voting rights of 40 percent, 40 percent and 20 percent, respectively. Based on the contractual arrangements signed by the investors, at least 70 percent of the voting rights are required to make decisions about the relevant activities of Furniture Steel With Glass Limited.

Required: Ascertain the presence or absence of a joint arrangement? Give reasons for your answer. Explain how the investors will account for the investment in Furniture Steel With Glass Limited.

Suggested answer to practice activity 21.4