Moffatt Ltd holds a 60% interest in Beach Ltd. Beach Ltd sells inventories to Moffatt Ltd during the year for $20 000. The inventories originally cost $14 000. At the end of the year 80% of the inventories are still on hand. The tax rate is 30%. The NCI adjustment required in relation to this transaction includes which of the following?
A) DR NCI $1344
B) DR NCI share of profit/(loss) $1344
C) DR NCI $1920
D) CR NCI $1344

Question

Quizplus · Accepted Answer

The NCI adjustment required is to eliminate the profit included in the inventory sold by Beach Ltd to Moffatt Ltd. The profit is calculated as the difference between the cost of the inventory and the selling price, which is $14,000 - $20,000 = $6,000. Since Moffatt Ltd holds a 60% interest in Beach Ltd, the NCI share of this profit is 40%, which is $6,000 x 40% = $2,400. Since 80% of the inventory is still on hand at the end of the year, the NCI share of the profit that has not yet been recognized is $2,400 x 80% = $1,920. Therefore, the NCI adjustment required is to debit NCI for $1,920.

Moffatt Ltd Holds a 60% Interest in Beach Ltd