A Ltd holds a 60% interest in B Ltd. On 1 July 2017 B Ltd transferred a depreciable non-current asset to A Ltd at a profit of $5 000. 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 transaction on the NCI for the year ended 30 June 2019 is:
A) an increase of $700.
B) a decrease of $700.
C) an increase of $1 750.
D) a decrease of $1 750.

Question

Quizplus · Accepted Answer

The unrealized profit on the asset transfer is $5,000. Since A Ltd holds a 60% interest, the NCI holds 40%. The profit is realized over 4 years, so $1,250 per year. For the year ended 30 June 2019, the NCI's share of the unrealized profit is 40% of $1,250, which is $500. After accounting for tax (30%), the impact on NCI is a decrease of $700.

A Ltd Holds a 60% Interest in B Ltd