A Ltd holds a 60% interest in B Ltd. On 1 July 2014 B Ltd transferred a depreciable non-current asset to A Ltd at a profit of £5000. The remaining useful life of the asset at the date of transfer was 4 years and the tax rate is 30%. The impact of the above on the NCI share of profit for the year ended 30 June 2015 is:
A) an increase of £2625
B) a decrease of £2625
C) an increase of £1050
D) a decrease of £1050.

Question

Quizplus · Accepted Answer

When the B Ltd transferred the non-current asset to A Ltd at a profit of £5000, a deferred tax liability was created at a rate of 30%. Therefore, the profit for the year ended 30 June 2015 would be reduced by £3500 (£5000 x 30% tax rate) due to the deferred tax liability.

Since A Ltd owns a 60% interest in B Ltd, 40% of the profit reduction (£3500 x 40%) will be allocated to NCI. This equals a reduction of £1400 in NCI's share of profit for the year ended 30 June 2015.

Therefore, option D is correct - there is a decrease of £1050 in NCI's share of profit for the year.

A Ltd Holds a 60% Interest in B Ltd