Kerry Ltd owns 70% of James Ltd.For the year ended 30 April 20X1, James Ltd reported a profit of $1 million.On 30 April 20X0, James Ltd had sold inventory to Kerry Ltd for a $0.5 million profit.All of this inventory was unsold by Kerry Ltd on 1 June 20X1.What is the consolidation adjustment (if any), to the NCI share of James Ltd's 20X1 profit as a result of this sale?
A)None, because all inventory was unsold
B)$150 000 decrease
C)$500 000 decrease
D)$150 000 increase

Question

Quizplus · Accepted Answer

The NCI (Non-Controlling Interest) share of James Ltd's profit needs to be adjusted because the profit on the inventory sale by James Ltd to Kerry Ltd is not realized from the group's perspective until the inventory is sold outside the group. Since Kerry Ltd owns 70% of James Ltd, the NCI owns the remaining 30%. The $0.5 million profit should not be recognized in the group accounts until the inventory is sold to an external party. Therefore, the NCI's share of the profit should be reduced by 30% of the $0.5 million intra-group profit, which is $150,000.

Kerry Ltd Owns 70% of James Ltd