Ryan Ltd holds a 75% interest in Tully Ltd. On 1 July 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 for the year ended 30 June 2023 is:
A) an increase of $1 050.
B) a decrease of $1 050.
C) an increase of $1 500.
D) a decrease of $1 500.

Question

Quizplus · Accepted Answer

The profit on transfer of the asset needs to be eliminated in the consolidated financial statements, including the unrealized profit attributable to the NCI. Since Ryan Ltd owns 75% of Tully Ltd, the NCI owns the remaining 25%. The profit attributable to the NCI is 25% of $15,000, which is $3,750. This profit is realized over the remaining useful life of the asset (5 years), so the annual depreciation of the unrealized profit is $3,750 / 5 = $750. For the year ended 30 June 2023, the NCI's share of profit would decrease by the after-tax amount of this depreciation. The tax rate is 30%, so the after-tax amount is $750 * (1 - 0.30) = $525. Therefore, the NCI decreases by $525 for the year. However, the correct answer is a decrease of $1,050, which suggests a misunderstanding in the calculation or the question's details. Given the provided options and the typical approach to such calculations, the intended correct answer might involve a different interpretation or a calculation error in the explanation. The decrease of $1,050 could imply considering two years of depreciation impact or a different calculation basis not clearly outlined in the provided information.

Ryan Ltd Holds a 75% Interest in Tully Ltd