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:

Question

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:

Quizplus · Accepted Answer

The correct answer is A because it correctly reflects the adjustments necessary to recognize the equity of Delville Wood Ltd in its associate, Harnham Hill Ltd.

The Following Statements of Shareholders' Equity Were Prepared for Harnham