Consolidation-Intercompany Transactions

0.0(0)
studied byStudied by 0 people
learnLearn
examPractice Test
spaced repetitionSpaced Repetition
heart puzzleMatch
flashcardsFlashcards
Card Sorting

1/29

encourage image

There's no tags or description

Looks like no tags are added yet.

Study Analytics
Name
Mastery
Learn
Test
Matching
Spaced

No study sessions yet.

30 Terms

1
New cards

Intercompany profit in Inventory transfer

  • multiplying the inventory held by the buying affiliate by the gross profit rate based on sales of the selling affiliate

2
New cards

Eliminating entries in: Intercompany inventory transactions

  • needed to remove the revenue and expenses related to the intercompany transfers recorded by the individual companies

3
New cards

Elimination

ensures that only the historical cost of the inventory still on hand is included in the consilidated Statement of Financial Position

4
New cards

no adjustment for consolidation

when an intercompany sale includes no profit or loss, the inventory amounts at the end of the period requires:

5
New cards

Inventory is resold to outsiders

the amount recognized as the cost of goods sold by the affiliate is the cost to the consolidated entity.

6
New cards

remove the intercompany sale, and related costs of goods sold recorded by the seller

  • even when the intercompany sale includes no profit or loss, the eliminating entry is needed to:

  • this avoids overstating the said accounts

7
New cards

Intercompany sale is made at Cost

  • the consolidated comprehensive income is not affected by eliminating entry when:

  • because both sales revenue and cost of goods sold are reduced by the same amount

8
New cards

“marked-up” by certain percentage based on cost

the sale of inventory to affiliates:

9
New cards

2 Goals of working paper eliminations (Intercompany sales include P/L)

  1. Eliminations of the effects in the (SCI) - by removing the sales revenue from the intercompany sale and the related costs of goods sold recorded by the selling affiliate.

  2. Eliminations from the Inventory on the (SPF) - of any profit or loss on the intercompany sale that has not been confirmed or realized by resale of the inventory to outsiders.

10
New cards

reported at a cost to the consolidated entity

  • inventory reported in the consolidated statement of financial position

  • any P/L arising from intercompany sales must be eliminated.

11
New cards

Downstream intercompany sales (selling inventory between affiliates)

  • sales made by a parent company to its subsidiaries

  • Profits recorded on an intercompany inventory sale - are realized in the period in which the inventory is resold to outsiders.

  • Until the point of resale - all intercompany profits must be deffered.

  • Consolidated Comprehensive Income - must be based on the realized income of the selling affiliate.

12
New cards

no effect on any non-contrilling interest (NCI) in the consolidated income or loss

  • if intercompany sales of merchandise are made by the parent company or wholly-owned subsidiary:

  • because the selling affiliate does not have an NCI

13
New cards

overstate the purchaser’s ending inventory

any merchandise purchased from an affiliated company that remains unsold on the date of preparing the Consolidated Statement of Financial Position.

14
New cards
term image
  • the first entry eliminates Peter Corps’ intercomapny sales to Saul Company and the related cost of goods sold.

  • this removes the overstatement of the consolidated amounts for sales and the cost of goods sold.

15
New cards
term image
  • the second removes the intercompany profit from Saul’s cost of goods sold, thereby reducing the consolidated inventories to the actual cost for the consolidated entity

16
New cards

realized trhough sales of merchandise to outsiders during the following period

assumed that on a first-in, first-out basis, the intercompany profit in the purchaser’s beginning inventories will be:

17
New cards

remain unrealized at the end of the period

only the intercomapny profit in the ending inventories

18
New cards

consolidated income involving inventories

knowt flashcard image
19
New cards

Upstream intercompany sales

  • sales from subsidiaries to the parent company

20
New cards

apportionment of unrealized intercompany profit to both the controlling and NCI

  • when the inventory is not resold to outsiders before the end of the period - there is now a difference in the elimination entries.

21
New cards

consolidated comprehensive income

knowt flashcard image
22
New cards

differs from intercompany sales of merchandise in two (2) aspects: Intercompany sales of property, plant, and equipment (PPE)

  • First, intercompany sales of PPE between affiliated companies are unusual transactions.

  • Second, the relatively long useful lives of PPE require the passage of many accounting periods before intercompany gains or losses on sales of these assets are realized in transactions with outsiders.

23
New cards

Non-depreciable PPE.

  • eliminations are often needed in the preparation of consolidated financial statements for as long as the assets are held by the acquiring company.

24
New cards

When land is sold between affiliated companies at book value,

  • no special adjustments or eliminations are needed in preparing the consolidated financial statements.

  • It is because both the income and assets are stated correctly from a consolidated point of view, and thus, the seller will not record any gain or loss.

25
New cards

intercompany sale of land at gain

  • requires adjustments or eliminations in the consolidation process.

26
New cards

land must be reported at its original cost

in the consolidated financial statements as long as it is held within the consolidated entity, regardless of which affiliate holds the land.

27
New cards

Generally, gains and losses

are not considered realized by the consolidated entity until a sale is made to outsiders.

28
New cards

Unrealized gains and losses are eliminated in preparing consolidated financial statements

against the interests of those shareholders who recognized the gains or losses.

29
New cards

The direction of the sale determines which shareholder shall absorb the elimination of unrealized intercompany gains or losses.

knowt flashcard image
30
New cards

when the assets are resold to outsiders

Unrealized intercompany gain on the sale of assets is viewed as being realized