A Ltd holds a 60% interest in B Ltd. B Ltd sells inventory to A Ltd during the year for $10 000. The inventories originally cost $7 000 when purchased from an external party. At the end of the year all inventories are still on hand, but were sold by the end of the next period. The tax rate is 30%. The NCI adjustment required in relation to this intragroup transaction at the end of the next period is a credit to Retained earnings (opening balance) of:
A) Nil.
B) $840.
C) $2 100.
D) $3 000.

Question

Quizplus · Accepted Answer

The unrealized profit on the inventory is $3,000 ($10,000 - $7,000). Since A Ltd holds a 60% interest, the NCI holds 40%. The NCI's share of the unrealized profit is 40% of $3,000, which is $1,200. After tax adjustment (30% tax rate), the NCI adjustment is $1,200 * (1 - 0.30) = $840.

A Ltd Holds a 60% Interest in B Ltd