A Ltd holds a 60% interest in B Ltd. On 30 June 2016 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 transaction on the NCI share of profit at 30 June 2016 is:
A) an increase of $1 400.
B) a decrease of $1 400.
C) an increase of $3 500.
D) a decrease of $3 500.

Question

Quizplus · Accepted Answer

Since A Ltd has transferred the asset at a profit of $5,000, it will result in an increase in profit for A Ltd and a decrease in profit for B Ltd. As NCI represents the portion of profit or loss attributable to equity holders of B Ltd, the transfer will result in a decrease in the NCI share of profit by 40% (60% is held by A Ltd, so NCI holds the remaining 40%) of $5,000, which is $2,000. After adjusting for tax, the decrease in NCI share of profit will be $1,400 (i.e. $2,000 x 70%). Therefore, the correct answer is option B.

A Ltd Holds a 60% Interest in B Ltd