Lady Ltd owns 25% of Gaga Ltd.Gaga's profit after tax for the year ended 30 June 2014 is $60 000.The tax rate is 30%.During the year ended 30 June 2014,Lady sold $10 000 worth of inventory to Gaga.These items had previously cost Lady $6000.All the items remain unsold by Gaga at 30 June 2014.Lady's share of Gaga's profit for the year ended 30 June 2014 is:

Question

Quizplus · Accepted Answer

First, we need to calculate the profit before tax for Gaga Ltd.

Profit before tax = $60,000 / (1-0.3) = $85,714.29

Next, we need to calculate the value of the inventory sold from Lady Ltd to Gaga Ltd.

Profit on sale = $10,000 - $6,000 = $4,000

Gaga Ltd's share of profit after tax (excluding the inventory profit) = $60,000 x 0.25 = $15,000

Gaga Ltd's share of profit before tax (including the inventory profit) = $85,714.29 x 0.25 = $21,428.57

So, Lady Ltd's share of Gaga Ltd's profit for the year ended 30 June 2014 is:

= $15,000 + ($4,000 x 0.25)

= $16,000

Therefore, the correct choice is (C) $14,300.

Lady Ltd Owns 25% of Gaga Ltd