ExpertHard2 marksMultiple Choice
ACCA · Question 31 · Preparing Simple Consolidated Financial Statements
Food & Bev Holdings acquires 75% of SnackCo. At the reporting date, SnackCo reports a profit after tax of $100,000. During the year, SnackCo sold goods to Food & Bev Holdings, and there is an unrealized profit of $20,000 in Food & Bev's closing inventory. What is the Non-Controlling Interest (NCI) share of SnackCo's profit for the year?
Food & Bev Holdings acquires 75% of SnackCo. At the reporting date, SnackCo reports a profit after tax of $100,000. During the year, SnackCo sold goods to Food & Bev Holdings, and there is an unrealized profit of $20,000 in Food & Bev's closing inventory. What is the Non-Controlling Interest (NCI) share of SnackCo's profit for the year?
Answer options:
A.
$25,000
B.
$20,000
C.
$30,000
D.
$15,000
How to approach this question
1. Identify who made the sale (SnackCo, the subsidiary). 2. Deduct the unrealized profit from the subsidiary's profit. 3. Multiply the adjusted profit by the NCI percentage (25%).
Full Answer
B.$20,000✓ Correct
Since SnackCo (the subsidiary) made the intra-group sale, the unrealized profit of $20,000 is included in SnackCo's reported profit. We must adjust SnackCo's profit: $100,000 - $20,000 = $80,000. The NCI owns 25% (100% - 75%). NCI share of profit = 25% × $80,000 = $20,000.
Common mistakes
Not adjusting the subsidiary's profit for the PURP, leading to $25,000 (Option A).
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