What adjustment is needed at 30 June 2023 in relation to the interest charged from Unite Ltd to its subsidiary, as provided in the data?
The adjustment that is needed at 30 June 2023 in relation to the interest charged is Option D: Dr Interest Income $100 000, Cr Interest expense $100 000. This adjustment is necessary because on 1 July 2021, interest of $100 000 was charged. Therefore, at the end of the financial year on 30 June 2022 and 30 June 2023, the interest earned by Unite Ltd will be $100,000 each year. Unite Ltd should have recognized the interest earned in its income statement over the two-year period, leading to the need for this adjustment.
Explanation:
Interest Income and Expense:
Unite Ltd provided a loan of $1,000,000 to its subsidiary Inspire Ltd, with an annual interest of $100,000 charged since 1 July 2021. This interest amount needs to be properly recognized in Unite Ltd's financial statements to reflect their earnings accurately over the years.
When calculating the interest income for the financial year ending on 30 June 2022, Unite Ltd should have recorded an interest income of $100,000 in its books of accounts. Similarly, at the end of the financial year on 30 June 2023, Unite Ltd should also have recorded an interest income of $100,000 in its financial statements.
The adjustment at 30 June 2023 is necessary to ensure that the interest income and expense accounts reflect the correct amounts and comply with accounting standards. By Dr-ing Interest Income and Cr-ing Interest expense by $100,000 each, Unite Ltd properly recognizes the interest earned from the loan provided to Inspire Ltd.
In conclusion, Option D is the correct adjustment needed at 30 June 2023 for Unite Ltd in relation to the interest charged to its subsidiary, Inspire Ltd.