Question

On January 1 2017, 80% of B was purchased by A for $750k. Excess of cost...

On January 1 2017, 80% of B was purchased by A for $750k. Excess of cost of book value for A totaled $10k. In the same year, B received a profit of $8k for inventory sold to A which is still in inventory. Excess is from undervalued equip amortized 4 years. Next year, B sold A $40k of inventory for $50k and 25% is still around in A inventory. B's income for the second year is $200k.

Use equity method to determine profits from B on the books of A for second year.

What is the non controlling interest for B in the second year? show your work

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Answer #1

As per equity method, at the time of purchase A account for $750k as investment in B. The investor company reports the revenue earned by the other company on its income statement, in an amount proportional to the percentage of its equity investment in the other company.

Profits from B in the books of A (second year)

80% of B's income ie., $200k $160k
Less: unrealised profit on inventory [(50k*25%)*20%*80%] ($2k)
Amortization of undervalued equip (10k/4) ($2.5k
A's share of profit $155.5k

Non controlling interest for B in the second year

At first we have to calculate the balance of investment of A, which is = $750k+$155.5k=$905.5k

This is 80% interest in B.

So minority interest of 20% is=($905.5k/80%)*20%=$226.375k

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