On 30 September 20X7,Auction Ltd Acquired a 10% Interest in an Oil

On 30 September 20X7,Auction Ltd acquired a 10% interest in an oil exploration joint venture operation,Deepwell Enterprises,from Creeker Ltd at a cost of $3 000 000.At 30 June 20X7,exploration had not yet reached the stage where an accurate evaluation of the area of interest could be made and each venturer had capitalised the expenditures incurred to that date in their own financial statements.For the year ended 30 June 20X8,the financial statements of the UJV disclosed:
a.Net assets at 1 July 20X7 $9 000 000-sundry assets $10 000 000 less sundry liabilities $1 000 000.Up to that stage $25 000 000 had been spent on exploration.
B.Exploration expenditure to 30 September 20X7 $4 000 000.
C.Net assets at 30 September 20X7 $5 000 000-sundry assets $6 000 000 less sundry liabilities $1 000 000.
D.Exploration expenditure 1 October 20X7 to 30 June 20X8 $20 000 000.
E.Cash contributions from venturers in the period 1 October 20X7 to 30 June 20X8 (in proportion to percentage interest held) $26 000 000.
F.Net assets at 30 June 20X8 $11 000 000-sundry assets of $13 000 000 less sundry liabilities of $2 000 000.Deferred exploration expenditure to 30 June 20X8 $49 000 000.
At the date of acquisition,30 September 19X7,which of the following journal entries would be used by Auction Ltd to record the cost of acquiring the investment in Deepwell Enterprises?

A) Dr Sundry Assets $600 000,Dr Deferred Exploration Expenditure $2 500 000,Cr Sundry Liabilities $100 000 Cr Cash $3 000 000.
B) Dr Investment in UJV $3 000 000,Cr Cash $3 000 000.
C) Dr Deferred Exploration Expenditure $3 000 000,Cr Cash $3 000 000.
D) None of the above.

Correct Answer:

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