The Following Information Relates to Questions
on 1 July20X0, Abel $\bullet$

question 19

Multiple Choice

The following information relates to Questions
On 1 July20X0, Abel Ltd entered into a 50:50 joint operation with Tasman Ltd to develop an oil field off the south coast of Tasmania. Each operator's initial contribution was €2 million. Abel contributed €1 million cash and equipment with a fair value of €1 million and a book value of €500,000. Tasman's contributed €2 million cash.
Additional information:
$\bullet$ Production costs for the JO for the year ended 30 June 20X1 were:
$\begin{array}{lr}&€'000\\\text { Purchases } & 750 \\\text { Wages } & 1,300 \\\text { Management fee } & 400\\\text { Total production costs } & 2,450 \\\text { Less: Work in progress } & (650) \\\text { Cost of production }&1,800\end{array}$
$\bullet$ The remaining useful life of the equipment contributed by Abel is 5 years.
$\bullet$ Tasman 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 €225,000.
$\bullet$ Tasman has sold all of the oil distributed to it and Abel has sold 50% of the oil distributed to it by 30 June 20X1.
An extract of JO's balance sheet at 30 June 20X1 shows:
$\begin{array} { l r } &€'000\\\text { Cash } & 650 \\\text { Work in progress } & 650 \\\text { Finished goods inventory } & 100 \\\text { Plant \& equipment } & 1,000 \\\text { Accounts payable } & (100) \\\text { Net assets }&2,300\end{array}$
-Tasman Ltd's initial contribution entry will include a debit to the Cash in JO account of:

• A) €1 000 000;
• B) €1 500 000;
• C) €2 000 000;
• D) €3 000 000.

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