Ryan Ltd holds a 75% interest in Tully Ltd. On 30 June 2021 Tully Ltd transferred a depreciable non-current asset to Ryan Ltd at a profit of $15 000. The remaining useful life of the asset at the date of transfer was 5 years and the tax rate is 30%. The impact of the above transaction on the NCI share of profit at 30 June 2021 is:
A) an increase of $2 625
B) an increase of $3 750
C) a decrease of $2 625
D) a decrease of $3 750

Question

Quizplus · Accepted Answer

As Ryan Ltd holds a 75% interest in Tully Ltd, the NCI holds the remaining 25% interest. The transfer of the non-current asset from Tully Ltd to Ryan Ltd at a profit of $15,000 will result in a deferred tax liability of ($15,000 x 30%) = $4,500. This deferred tax liability is allocated between the controlling and non-controlling interests based on their proportionate share of the profits. Therefore, the impact on the NCI share of profit will be a decrease of ($4,500 x 25% x 5/12) = $2,625.

Ryan Ltd Holds a 75% Interest in Tully Ltd