The Following Statements of Shareholders' Equity Were Prepared for Harnham

question 19

Multiple Choice

The following statements of shareholders' equity were prepared for Harnham Hill Ltd,a 20% owned associate of the parent entity Delville Wood Ltd,at 30 June (amounts in thousands) : $\begin{array}{lrrr}&20x3&20x7&20x8\\\text { Shareholders' equity }\\\text { Share capital }&\$ 2000 & \$ 2000 & \$ 2000 \\\text { Revaluation surplus }& & & 1000 \\ \text { Retained earnings }&4000 & 6000 & 6500\\\text { Total shareholders' equity }&\$6000&\$8000&\$9500\end{array}$
-Other information:
I.Delville Wood Ltd acquired its 20% investment on 1 July 20X3 for a cash outlay of $2 000 000.
II.During the year ended 30 June 20X8,Harnham Hill Ltd earned a profit of $1,400 000 before tax (income tax expense $400 000) and paid a dividend of $500 000.
III.At 30 June 20X7,Delville Wood Ltd held inventories that had been supplied by Harnham Hill Ltd at a markup of $100 000.
IV.At 30 June 20X8,a subsidiary of Delville Wood Ltd held inventories that had been supplied by Harnham Hill Ltd at a markup of $50 000.
V.During the year ended 30 June 20X8,Delville Wood Ltd charged Harnham Hill Ltd with a management fee of $100 000 for administration services.
VI.The income statement of Harnham Hill Ltd recognised interest revenue of $50 000,which had been earned on a loan made to a subsidiary of Delville Wood Ltd.
VII.The income tax rate was 30%.
VIII.Any goodwill element in the cost of the investment had not been impaired in the investment period.
In preparing the consolidated financial statements for the year ended 30 June 20X8,the journal adjustment to recognise the equity of Delville Wood Ltd in its associate would be:

• A)\(\begin{array}{lrr}
• \text { Investment in Associates and Joint Ventures } & \$ 693,000 & \\
• \text { Retained Earnings 1 July 20X7 } & & \$ 386,000 \\
• \text { Equity in Profit before Tax of Associates and } && 29,0000\\\text { Joint Ventures }\\\text { Equity in profits after tax } & 207,000 & \\
• \text { Dividend Revenue } & 100,000 & \\
• \quad \text { Revaluation surplus } & & 200,000
• \end{array}\)
• B)\(\begin{array}{lll}\text { Investment in Associates and Joint Ventures }&&\$103,000\\
• \text { Goodwill } & 800,000 & \\
• \text { Retained Earnings 1 July 20X7 } & & 400,000 \\
• \text { Equity in Profit before Tax of Associates and } & 280,000\\\text { Joint Ventures }\\
• \text { Equity in profits after tax } & 207,000 & \\
• \text { Dividend Revenue } & 100,000 & \\
• \quad \text { Revaluation surplus } & & 200,000
• \end{array}\)
• C)\(\begin{array}{lll}
• \text { Investment in Associates and Joint Ventures }&\$500,000\\
• \text {Retained Earnings 1 July \( 20X 7 \) }&\$400,000\\
• \text {Equity in Profit before Tax of Associates and }&283,000\\
• \text {Joint Ventures }&\\
• \text { Equity in profits after tax}&207,000\\
• \text { dividend revenue}&100,000\\
• \end{array}\)
• D) none of the above

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Definitions:

Relationship Development

The process of building and maintaining connections with business partners, customers, or other stakeholders through communication, engagement, and mutually beneficial interactions.

Promotional Mix

The combination of marketing tools and strategies a company uses to communicate its value proposition and engage with its target audience.

Product Characteristic

A distinct attribute or feature of a product that can include quality, functionality, design, and performance among others.

Complexity

The state of having multiple parts interrelated in such a way that it is difficult to understand, predict, or control outcomes.