Lola Ltd Acquired 20% of and Significant Influence Over the Operations

question 7

Multiple Choice

Lola Ltd acquired 20% of and significant influence over the operations of World Ltd on 1 July 20X0.At that date the equity of World Ltd comprised retained profits of $900 000 and paid up capital of $5 000 000.During the financial year ended 30 June 20X1, World Ltd revalued its plant and equipment upwards by $400 000, crediting this amount to its asset revaluation reserve.Lola Ltd does not control any entities.What is the journal entry, if any, to record this revaluation in the financial statements of Lola Ltd for the year ended 30 June 20X1 using equity accounting?

• A)\(\begin{array} { l c c }
• \text { Accounts } & \text { Debit \$ } & \text { Credit \$ } \\
• \text { Investment in World Ltd } & 400000 & \\
• \text { Dividend revenue } & & 400000
• \end{array}\)
• B)\(\begin{array}{lrc}
• \text { Accounts } & \text { Debit \$ } & \text { Credit \$ } \\
• \text { Investment in World Ltd } & 80000 & \\
• \text { Dividend revenue } & & 80000
• \end{array}\)
• C)\(\begin{array} { l r r }
• \text { Accounts } & \text { Debit \$ } & \text { Credit \$ } \\
• \text { Investment in World Ltd } & 80000 & \\
• \text { Share of associate's reserves } & & 80000
• \end{array}\)
• D)No journal entry is required because the revaluation does not affect World Ltd's profit

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