Thorpe Ltd owns 70% of the issued share capital of Perkins Ltd.Perkins Ltd owns 80% of the issued share capital of Hackett Ltd and 60% of the issued share capital of Klim Ltd.For the year ended 31 December 20X0 each company reported the following profits/(losses):
$\begin{array} { l c }
& \$ \
\text { Thorpe Ltd } & ( 800000 ) \
\text { Perkins Ltd } & ( 600000 ) \
\text { Hackett Ltd } & 700000 \
\text { Klim Ltd } & 700000
\end{array}$
-What are the amounts of the NCI's direct and indirect interest in Hackett Ltd's profit for this financial year?
A)
$\begin{array}{ll}
\text { Direct (\$) } & \text { Indirect (\$) } \
140000 & 168000
\end{array}$

B)
$\begin{array} { l l }
\text { Direct (\$) } & \text { Indirect (\$) } \
140000 & 392000
\end{array}$
C)
$\begin{array} { l l }
\text { Direct (\$) } & \text { Indirect (\$) } \
168000 & 140000
\end{array}$
D)
$\begin{array} { l l }
\text { Direct (\$) } & \text { Indirect (\$) } \
168000 & 392000
\end{array}$

Question

Thorpe Ltd owns 70% of the issued share capital of Perkins Ltd.Perkins Ltd owns 80% of the issued share capital of Hackett Ltd and 60% of the issued share capital of Klim Ltd.For the year ended 31 December 20X0 each company reported the following profits/(losses):
$\begin{array} { l c } 
& \$ \
\text { Thorpe Ltd } & ( 800000 ) \
\text { Perkins Ltd } & ( 600000 ) \
\text { Hackett Ltd } & 700000 \
\text { Klim Ltd } & 700000
\end{array}$
-What are the amounts of the NCI's direct and indirect interest in Hackett Ltd's profit for this financial year?
A)
$\begin{array}{ll}
\text { Direct (\$) } & \text { Indirect (\$) } \
140000 & 168000
\end{array}$

B)
$\begin{array} { l l } 
\text { Direct (\$) } & \text { Indirect (\$) } \
140000 & 392000
\end{array}$
C)
$\begin{array} { l l } 
\text { Direct (\$) } & \text { Indirect (\$) } \
168000 & 140000
\end{array}$ 
D)
$\begin{array} { l l } 
\text { Direct (\$) } & \text { Indirect (\$) } \
168000 & 392000
\end{array}$

Quizplus · Accepted Answer

Direct interest is calculated based on the NCI's percentage ownership in Hackett Ltd, which is 20% (100% - 80% owned by Perkins Ltd) of Hackett Ltd's profit of $700,000, resulting in $140,000. Indirect interest is calculated based on Thorpe Ltd's ownership in Perkins Ltd (70%) and Perkins Ltd's ownership in Hackett Ltd (80%), resulting in a 56% (70% of 80%) effective interest for Thorpe Ltd in Hackett Ltd. Therefore, the NCI's indirect interest is 44% (100% - 56%) of Hackett Ltd's profit, which is $308,000 (44% of $700,000). However, the provided options do not match this calculation exactly due to a mistake in my explanation regarding the calculation of indirect interest. The correct approach for indirect interest should involve the NCI's share in Perkins Ltd (30%) and Perkins Ltd's ownership in Hackett Ltd (80%), leading to an indirect interest of 24% (30% of 80%) for the NCI in Hackett Ltd's profit. This miscalculation led to an incorrect interpretation of the indirect interest amount. The correct calculation for indirect interest should align with the methodology of calculating NCI's share based on their proportionate ownership through the parent and subsidiary relationship, which was not accurately reflected in the initial explanation.

Thorpe Ltd Owns 70% of the Issued Share Capital of Perkins