Moffatt Ltd holds a 60% interest in Beach Ltd.Beach Ltd sells inventory to Moffatt Ltd during the year for $20 000.The inventory originally cost $14 000.At the end of the year 80% of the inventory is still on hand.The tax rate is 30%.The NCI adjustment required in relation to this transaction includes which of the following?
A)DR NCI $1344
B)DR NCI share of profit/(loss)$1344
C)DR NCI $1920
D)CR NCI $1344

Question

Quizplus · Accepted Answer

The NCI adjustment required in relation to this transaction is the proportionate share of the profit from the sale of inventory to Moffatt Ltd. The profit on the sale is $6,000 ($20,000 - $14,000), and since Moffatt Ltd holds a 60% interest in Beach Ltd, the NCI would have a 40% interest in the profit, which is $2,400. However, since only 80% of the inventory is still on hand, the adjustment would be $2,400 x 80% = $1,920. To adjust the NCI balance, we would debit NCI for $1,920 x 70% (to account for tax of 30%) = $1,344. Therefore, the correct answer is A.

Moffatt Ltd Holds a 60% Interest in Beach Ltd