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QUESTION 7 Lady Ltd owns 25% of Gaga Ltd. Gaga’s profit after tax for the year...

QUESTION 7 Lady Ltd owns 25% of Gaga Ltd. Gaga’s profit after tax for the year ended 30 June 2017 is $50,000. The tax rate is 30%. During the year ended 30 June 2017, Lady sold $10,000 worth of inventory to Gaga. These items had previously cost Lady $7,000. All the items remain unsold by Gaga at 30 June 2017. Lady’s share of Gaga’s profit for the year ended 30 June 2017 is: $11,975. $11,750. $8,225. $9,275.

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Answer #1

Lady’s share of Gaga’s profit for the year ended 30 June 2017:-

[Gaga’s Profit after Tax for year ended 30 June 2017 – Lady’s Profit after Tax in Inventory sold to Gaga which remain unsold] * Lady Ltd share

[$50000 – ($10000 - $7000)*0.7] * 25%

[$50000 - $2100] * 25%

= $11975

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