Colette Ltd, owns 25% of Ambrose Ltd. Ambrose's profit after tax for the year ended 30 June 2021 is $50 000. The tax rate is 30%. During the year ended 30 June 2022, Ambrose sold $8000 worth of inventories to Colette. These items had previously cost Ambrose $6500. All the items remain unsold by Colette at 30 June 2022. Colette's share of Ambrose's profit for the year ended 30 June 2022 is:

Question

Quizplus · Accepted Answer

First, we need to calculate Ambrose's profit after tax for the year ended 30 June 2022:

Profit after tax 2021 = $50,000 x 0.7 = $35,000

Profit after tax 2022 = $35,000 + ($8,000 - $6,500) x 0.7 = $36,250

Colette's share of the profit for the year ended 30 June 2022 would be:

$36,250 x 0.25 = $9,062.50

However, we also need to add back the profit Colette made from the sale of inventories to Ambrose:

$8,000 - $6,500 = $1,500 (Colette's profit)

$1,500 x 0.25 = $375 (Colette's share)

Therefore, Colette's total share of Ambrose's profit for the year ended 30 June 2022 is:

$9,062.50 + $375 = $9,437.50

Rounding this up to the nearest cent gives us $9,437.50, which when rounded to two decimal places is $9,437.50. However, the question asks for the answer rounded to the nearest cent, so we need to round this up one more time:

$9,437.50 rounded up = $9,437.50

Therefore, the answer is D) $12,762.50.

Colette Ltd, Owns 25% of Ambrose Ltd