The Following Statements of Shareholders' Equity Were Prepared for Harnham

question 44

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.On 1 July 20X3,Delville Wood Ltd acquired its 20% investment 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.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 adjustment to recognise the equity of Delville Wood Ltd in its associate would be:

• A)\(\begin{array}{lll}
• \text {Investment in Associates and Joint Ventures }&\$700,000\\
• \text { Retained Earnings}&\$400,000\\
• \text {Equity in Profit before Tax of Associates and }&280,000\\
• \text { Ventures}&\\
• \text {Equity in profits after tax }&200,000\\
• \text {Dividend Revenue }&100,000\\\text {Revaluation surplus }&200,000\\
• \end{array}\)
• B)\(\begin{array}{lll}\text { Investment in Associates and Joint Ventures }&&\$100,000\\
• \text { Goodwill } & 800,000 \\
• \text { Retained Earnings } & & 400,000 \\
• \text { Equity in Profit before Tax of Associate } && 280,000\\\text { Equity in profits after tax } & 200,000 & \\
• \text { Dividend Revenue } & 100,000 & \\
• \quad \text { Revaluation surplus } & & 200,000
• \end{array}\)
• C)\(\begin{array}{ll}\text { Investment in Associates and Joint Ventures }&\$500,000\\
• \text { Retained Earnings } && \$ 400,000 \\
• \text { Equity in Profit before Tax of Associates and } && 280,000 \\
• \text { Joint Ventures } &\\
• \text { Equity in profits after tax } & 200,000 \\
• \text { Dividend Revenue } & 100,000
• \end{array}\)
• D) none of the above

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Definitions:

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