On 1 July 2016, Sunday Ltd Entered into a 50:50

question 27

Multiple Choice

On 1 July 2016, Sunday Ltd entered into a 50:50 joint operation with Night Ltd to develop an open cut coal mine in central Queensland. Each operator's initial contribution was $4 million. Sunday contributed $2 million cash and equipment with a fair value of $2 million and a book value of $1 000 000. Night contributed $4 million cash.
Additional information
-Production costs for the JO for the year ended 30 June 2017 were as follows.
$\begin{array}{lr}&\text { \$'000 }\\\text { Purchases } & 1500 \\\text { Wages } & 2600 \\\text { Management fee } &\underline{ 800} \\ \text { Total production costs } & 4900 \\\text { Less: work in progress } &\underline{ (1300) } \\\text { Cost of production } & \underline{3600}\end{array}$
-The remaining useful life of the equipment contributed by Sunday is 5 years.
-Night is responsible for the day to day management of JO and has recognised the management fee received during the year as revenue. The costs of providing these management services to JO was $450 000.
-Night has sold all of the coal distributed to it and Sunday has sold 50% of the coal distributed to it by 30 June 2017.
An extract of JO's balance sheet at 30 June 2017 shows:
$\begin{array}{lr}&\text { \$'000 }\\\text { Assets }\\\text { Cash } & 1300 \\\text { Work in progress } & 1300 \\\text { Finished goods inventories } & 200 \\\text { Plant \& equipment } & 2000 \\\text { Accounts payable } & \underline{(200) } \\\text { Net assets } &\underline{\underline{ 4600}} \\\end{array}$
Which of the following will not form part of Sunday Ltd's initial contribution entry?

• A) Debit against the cash in JO account of $3 000 000.
• B) Debit against the equipment in JO account of $1 000 000.
• C) Credit against the cash of $2 000 000.
• D) Credit against the gain on equipment of $500 000.

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