On 1 July 20X0, Abel Ltd Entered into a 50:50

On 1 July 20X0, 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
Production costs for the JO for the year ended 30 June 20X1 were:

The remaining useful life of the equipment contributed by Abel is 5 years.
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.
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:

The value of inventories distributed to Abel Ltd by the joint venture and subsequently sold by 30 June 20X1 is:

A) $425 000.
B) $850 000.
C) $900 000.
D) $1 700 000.

Correct Answer:

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