Mata kuliah : F0074 - Akuntansi Keuangan Lanjutan II
Tahun
: 2010
Intercompany Profit Transaction – Plant Assets
Pertemuan 7-8
Intercompany Profit Transactions – Plant Assets
1: Transfers of Plant Assets
Intercompany Fixed Asset Sales
Intercompany sales of non-depreciable fixed assets:
• In year of intercompany sale
– Defer any gain or loss
– Restate fixed asset to cost
• In years of continued ownership
– Adjust investment account to defer gain or loss (adjust noncontrolling interest too, if upstream sale)
– Restate fixed asset to cost
• In year of sale to outside entity
– Adjust investment account (and non-controlling interest if
upstream sale)
– Recognize the previously deferred gain or loss
Intercompany Sale of Land
• Park owns 90% of Stan, acquired at cost equal to fair value.
In 2009, Park sells (downstream) land to Stan and records a
$10 gain. In 2013, Stan sells the land to an outside entity at
a $15 gain. Stan's separate income was $70 in 2009, $80
per year for 2010 to 2012, and $90 in 2013.
2009 Calculations
Defer the unrealized gain, with full effect to Park
• Park's Income from Stan
90%(70) – 10 = $53
• Non-controlling interest share
10%(70) = $7
Elimination entry for 2009 Worksheet
Gain on sale of land
Land
10
10
2010 to 2012 Calculations
Continue to defer gain, with full effect to Park
• Park's Income from Stan
90%(80) = $72
• Noncontrolling interest share
10%(80) = $8
Elimination entry for Worksheets in 2010 to 2012
Investment in Stan
Land
10
10
2013 Calculations
Recognize the previously deferred gain, with full effect to Park
• Park's Income from Stan
90%(90) + 10 = $91
• Noncontrolling interest share
10%(90) = $9
Elimination entry for 2013 Worksheet
Investment in Stan
Gain on sale of land
10
10
Intercompany Profit Transactions – Plant Assets
2: Deferring Unrealized Profits
Unrealized Profits on Fixed Assets
Unrealized profit or loss on non-depreciable fixed assets
– Defer in year of intercompany sale
– Continue deferring by adjusting the investment in
subsidiary (and non-controlling interest if upstream)
– Recognize full profit or loss upon resale to outside entity
Depreciable Fixed Assets
Gains and losses on intercompany sales of depreciable fixed
assets
– Defer in period of intercompany sale
– Recognize gain or loss over remaining life of asset
• Adjust asset and depreciation down for gains
• Adjust asset and depreciation up for losses
– Recognize any unamortized gain or loss upon sale to
outside entity
Downstream Example
Perry owns 80% of Soper, acquired at cost equal to fair value.
On 1/1/09, Perry sells equipment to Soper at a $30 profit. The
equipment has a remaining life of 5 years from 1/1/09. Soper
disposes of the equipment at book value at the end of 5 years.
Soper's income is $70 in 2009, $80 per year for 2010 to 2012,
and $90 in 2013.
2009 Calculations
Defer the unrealized gain and amortize it over 5 years with full
effect to Perry
30 gain / 5 years = $6
• Perry's Income from Soper
80%(70) – 30 + 6 = $32
• Non-controlling interest share
20%(70) = $14
Elimination entry for 2009 Worksheet
Gain on sale of equipment
30
30
Equipment
Accumulated depreciation
Depreciation expense
6
6
Intercompany Profit Transactions – Plant Assets
3: Recognizing Realized, Previously Deferred
Profits
Previously Deferred Gains/Losses
Recognize over the life of the depreciable asset
– Downstream sales
• Adjust investment in subsidiary account
– Upstream sales
• Adjust investment in subsidiary account and noncontrolling interest, proportionately
– Intercompany sales at a gain
• Adjust asset and depreciation down
– Intercompany sales at a loss
• Adjust asset and depreciation up
2010 to 2012 Calculations
Continue to recognize part of the gain, with full effect to Perry
• Perry's Income from Soper
80%(80) + 6 = $70
• Noncontrolling interest share
20%(80) = $16
Elimination entry for Worksheets in 2010
Investment in Soper
Accumulated depreciation
24
6
30
Equipment
Accumulated depreciation
Depreciation expense
6
6
Entries (cont.)
Worksheet entries for 2011
Investment in Soper
Accumulated depreciation
18
12
30
Equipment
Accumulated depreciation
6
6
Depreciation expense
Worksheet entries for 2012
Investment in Soper
12
Accumulated depreciation
18
30
Equipment
Accumulated depreciation
Depreciation expense
6
6
2013 Calculations
Recognize the remaining deferred gain, with full effect to Perry
• Perry's Income from Soper
80%(90) + 6 = $78
• Non-controlling interest share
20%(90) = $18
Elimination entries for 2013 Worksheet
Investment in Soper
Accumulated depreciation
6
24
30
Equipment
Accumulated depreciation
Depreciation expense
6
6
Intercompany Profit Transactions – Plant Assets
4: Impact on Non-controlling Interest
Sharing Unrealized Gain or Loss
Upstream sales of fixed assets require:
– Deferring the gain or loss on the sale
– Recognizing a portion of the gain or loss as the asset
depreciates
– Writing off any unrecognized gain or loss upon the sale
of the asset
– Sharing the gains and losses between the controlling
and non-controlling interests
Upstream sales impact non-controlling interests!
Upstream Example
Pail owns 70% of Shovel, acquired at cost equal to fair value.
On 1/1/09, Shovel sells equipment to Pail at a $40 profit. The
equipment has a remaining life of 5 years from 1/1/09. Pail
Uses the equipment for four years, then sells it at a profit at
the start of 2013. Shovel's income is $70 in 2009, $80 per year
for 2010 to 2012, and $90 in 2013.
2009 Calculations
Defer the unrealized gain and amortize it over 5 years sharing
the gain
40 gain / 5 years = $8
• Pail's Income from Shovel
70%(70 – 40 + 8) = $26.6
• Noncontrolling interest share
30%(70 – 40 + 8) = $11.4
Elimination entry for 2009 Worksheet
Gain on sale of equipment
40
Equipment
40
Accumulated depreciation
8
Depreciation expense
8
2010 to 2012 Calculations
Continue to recognize part of the gain, sharing its effect
between the controlling and non-controlling interests
• Pail's Income from Shovel
70%(80 + 8) = $61.6
• Noncontrolling interest share
30%(80 + 8) = $26.4
2010 Worksheet Entries
Elimination entry for Worksheets in 2010
Investment in Shovel
22.4
Noncontrolling interest
9.6
Accumulated depreciation
8.0
Equipment
Accumulated depreciation
Depreciation expense
40.0
8.0
8.0
2011 Worksheet Entries
Worksheet entries for 2011
Investment in Shovel
Noncontrolling interests
Accumulated depreciation
16.8
7.2
16.0
Equipment
Accumulated depreciation
Depreciation expense
40
8.0
8.0
2012 Worksheet Entries
Worksheet entries for 2012
Investment in Shovel
Noncontrolling interest
Accumulated depreciation
11.2
4.8
24.0
Equipment
Accumulated depreciation
Depreciation expense
40.0
8.0
8.0
2013 Calculations
Recognize the remaining deferred gain, sharing the impact with controlling
and non-controlling interests
• Unamortized gain = 1 year at $8
• Pail's Income from Shovel
70%(90 + 8) = $68.6
• Noncontrolling interest share
30%(90 + 8) = $29.4
Elimination entries for 2013 Worksheet
Investment in Shovel
Noncontrolling interests
Accumulated depreciation
5.6
2.4
32.0
40.0
Equipment
Accumulated depreciation
Gain on sale of equipment
8.0
8.0
Sale at Other Than Fair Value
Intercompany sales of fixed assets at prices other than fair
value
– Deserve scrutiny by shareholders
– Sales above fair value move additional cash to the
seller
– Sales below fair value transfer valuable goods to the
buyer
– There is a transfer of wealth between the affiliated
companies, and between the controlling and noncontrolling interests
Inventory Items  Fixed Assets
An intercompany sale of inventory which is acquired as a fixed
asset
– Unrealized profit is removed from cost of sales in year of
sale
– Profit is recognized over the fixed asset's life
Cost of sales
XXX
Equipment
Accumulated depreciation
Depreciation expense
XXX
X
X