Clove Ltd owns 40% of Bark Ltd. Bark Ltd's profit after tax for the year ended 30 June 2022 is $120 000. The tax rate is 30%. On 1 July 2020, Bark Ltd sold an item of plant to Clove Ltd for $164 000. The carrying amount of the asset on this date in Bark Ltd's records was $152 000. The plant had a remaining useful life of 4 years. Clove's share of Bark's profit for the year ended 30 June 2022 is:

A) $41 000
B) $44 000
C) $48 840
D) $52 800

Question

Abbey Hassett · Accepted Answer

Final Answer : C, Explanation :  First, we need to calculate Bark Ltd's profit before tax:Profit after tax / (1 - Tax rate) = Profit before tax$120 000 / (1 - 0.30) = $171 429Next, we need to find the profit or loss on sale of plant:Sale price - Carrying amount - Depreciation expense$164 000 - $152 000 - ($152 000 / 4) = $2 000Since Clove Ltd bought the plant from Bark Ltd, Bark Ltd will record a profit on the sale of $2 000. However, since Clove Ltd owns 40% of Bark Ltd, Clove Ltd's share of the profit on sale is $800.Finally, we can calculate Clove Ltd's share of Bark's profit for the year:Profit before tax x Clove Ltd's ownership percentage - Clove Ltd's share of profit on sale$171 429 x 0.40 - $800 = $48 840. Therefore, the best choice is C, $48,840.

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