Dion Ltd acquired a 60% ownership interest in Sean Ltd on 30 June 2021. On the same day, Sean Ltd acquired a 70% ownership interest in Jayden Ltd. The following inter-entity transactions have taken place between the entities in the group during the years ended 30 June 2022 and 30 June 2023.
i. On 1 July 2021 Sean sold an item of plant to Jayden for a profit of $40 000. The remaining useful life of the plant at the date of transfer was 4 years.
ii. On 1 September 2021, Jayden paid a dividend of $50 000 from profits earned since 30 June 2021.
iii. Dion lent $60 000 to Sean on 1 January 2022. Interest charged on the loan for the year ended 30 June 2022 was $4000 and for the year ended 30 June 2023 was $8000.
iv. On 31 May 2022 Dion sold inventories to Jayden for $30 000. Profit earned on the sale was $4000. Jayden sold the inventories to external parties on 1 August 2022.
Details of profits earned by entities within the group for the years ended 30 June 2022 and 30 June 2023 are:
$\begin{array}{|l|r|r|}
\hline & \text { 30 June 2022 } & \text { 30 June 2023 } \
\hline \text { Dion } & 200000 & 250000 \
\hline \text { Sean } & 170000 & 140000 \
\hline \text { Jayden } & 40000 & 70000 \
\hline
\end{array}$ The tax rate is 30%.
For the sale of plant on 1 July 2021, what is the net NCI adjustment for the year ending 30 June 2022?

Question

Quizplus · Accepted Answer

The net NCI adjustment for the sale of plant involves calculating the unrealized profit to be eliminated and attributing the relevant portion to the NCI. The profit on sale was $40,000, and with a remaining useful life of 4 years, the annual depreciation on the unrealized profit is $10,000. Since Sean Ltd owns 70% of Jayden Ltd, the NCI share is 30%. Therefore, the NCI adjustment for the year ending 30 June 2022 is 30% of $10,000, which is $3,000. However, since the question asks for the net NCI adjustment, we must also consider the tax effect. The tax rate is 30%, so the tax saving on the depreciation is $3,000 * 30% = $900. The net effect is $3,000 - $900 = $2,100. Since Sean Ltd owns 60% of Jayden Ltd, the adjustment attributed to NCI is 40% of $2,100, which is incorrect based on the initial calculation. The correct approach is directly applying the 30% NCI share to the pre-tax amount, leading to a direct NCI adjustment of $3,000 for the year, without subtracting the tax effect in this context. The error in the explanation was in incorrectly adjusting for tax on the NCI portion and misstating the ownership percentage in the final step. The correct NCI adjustment is directly related to their share of the unrealized profit, without a further tax adjustment in this calculation. The correct answer should reflect the NCI's share of the unrealized profit without additional adjustments, which was not accurately captured in the provided options or explanation.

Dion Ltd Acquired a 60% Ownership Interest in Sean Ltd