Final answer:
The correct indirect speech transformation of 'Children said, "We have eaten lots of chocolate."' is 'Children said they had eaten lots of chocolate.', as it involves shifting the tense from present perfect to past perfect.
Step-by-step explanation:
To change the sentence "Children said, 'We have eaten lots of chocolate.'" into indirect speech, you need to consider the tense shift that typically occurs when moving from direct to reported speech. The correct transformation would be: Children said they had eaten lots of chocolate. In this case, the present perfect tense ('have eaten') in the direct speech is shifted to the past perfect tense ('had eaten') in the indirect speech.
This is in accordance with the rule that when the reporting verb is in the past tense, the tense of the direct speech is usually shifted back one step when it is reported. Therefore, option b) Children said they had eaten lots of chocolate is the correct transformation into indirect speech.