A Ltd holds a 60% interest in B Ltd.On 1 July 20X8 B Ltd transferred a depreciable non-current asset to A Ltd at a profit of $5 000.The remaining useful life of the asset at the date of transfer was 4 years and the tax rate is 30%.The impact of the above on the NCI share of profit for the year ended 30 June 20X9 is:
A)an increase of $2 625
B)a decrease of $2 625
C)an increase of $1 050
D)a decrease of $1 050.

Question

Quizplus · Accepted Answer

The transfer of the depreciable non-current asset at a profit of $5,000 will result in a tax liability of $1,500 (30% of $5,000). As A Ltd holds a 60% interest in B Ltd, it will receive 60% of the profit, resulting in an increase in its profit of $3,000 (60% of $5,000). However, the NCI share of profit will reduce by $1,050 (70% of $1,500), resulting in a decrease in overall profit for NCI. Therefore, the correct answer is (D) a decrease of $1,050.

A Ltd Holds a 60% Interest in B Ltd