Arbiter Ltd. holds a 60% interest in Brown Ltd. On July 1, 2012, Brown Ltd. transferred a depreciable non-current asset to Arbiter 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 on the NCI share of net income for the year ended June 30, 2013 is:
A)An increase of $2,625.
B)A decrease of $2,625.
C)An increase of $1,050.
D)A decrease of $1,050.

Question

Quizplus · Accepted Answer

Since Arbiter Ltd. holds a 60% interest in Brown Ltd., the remaining 40% interest is attributable to non-controlling interest (NCI). Any profit on transfer of assets from Brown Ltd. to Arbiter Ltd. will impact the NCI share of net income.
The profit on transfer of the asset is $5,000, which will result in a deferred tax liability of $1,500 (i.e. 30% of $5,000). This liability will be recognized in Arbiter Ltd.'s financial statements, and since Arbiter Ltd. owns 60% of Brown Ltd., 60% of this liability will be attributed to Arbiter Ltd., and 40% will be attributed to NCI.
Therefore, the impact on NCI's share of net income will be a decrease of $1,050 (i.e. 40% of $1,500).