Currimundi Ltd holds a 60% interest in Beach Ltd.Beach Ltd purchases inventory from Currimundi Ltd during the year for $30 000.The inventory originally cost $21 000.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 a debit of which of the following?
A)Nil
B)$2016
C)$504
D)$5040

Question

Quizplus · Accepted Answer

The NCI adjustment is required to eliminate the intercompany profit from the consolidated financial statements. The intercompany profit is the difference between the cost of the inventory to Currimundi Ltd and the price at which it was sold to Beach Ltd. In this case, the intercompany profit is $30,000 - $21,000 = $9,000. The NCI adjustment will include a debit to the NCI of 40% of the intercompany profit, which is $9,000 x 40% = $3,600. However, since 80% of the inventory is still on hand at the end of the year, only 20% of the intercompany profit has been realized. Therefore, the NCI adjustment will include a debit of 20% of $3,600, which is $720.

Currimundi Ltd Holds a 60% Interest in Beach Ltd