Paul Ltd owns 60% of John Ltd and both companies have a financial year end of 30 April.On 30 April 20X0, Paul Ltd sold a non-current asset to John Ltd for $1 million profit.The remaining useful life at sale date was 10 years.Both entities assume the same total useful life, zero residual amount and use straight-line depreciation.Paul Ltd is currently preparing the financial statements for the year ended 30 April 20X2.Profit for that year (unadjusted for consolidation matters) is Paul $5 million, John $3 million.What is the NCI share of John Ltd's profit for the financial year ended 30 April 20X2?
A)$1 240 000
B)$740 000
C)$800 000
D)$1 200 000

Question

Quizplus · Accepted Answer

Step 1: Calculate the depreciation charge for the non-current asset sold from Paul to John Ltd
Depreciation charge per year = ($1 million profit / 10 years remaining useful life) = $100,000 per year
Step 2: Adjust John Ltd's profit for the impact of the intra-group sale
John Ltd's profit inclusion = ($100,000 x 2 years of ownership) = $200,000
Adjusted John Ltd's profit = ($3 million – $200,000) = $2.8 million
Step 3: Calculate the NCI share of John Ltd's profit
NCI share of John Ltd's profit = (40% x $2.8 million) = $1,120,000
Since the question asks for the NCI's share of John Ltd's profit for the financial year ended 30 April 20X2, the answer is closest to $1 240 000, which is option A.

Paul Ltd Owns 60% of John Ltd and Both Companies