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    Intercompany Transactions

    Uploaded by

    mgplaton11
    lecture notes in business combination about intercompany transactions

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    Intercompany Transactions

    Uploaded by

    mgplaton11
    3 views26 pages
    lecture notes in business combination about intercompany transactions

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    © © All Rights Reserved

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    PDF, TXT or read online from Scribd

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    lecture notes in business combination about intercompany transactions

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    3 views26 pages

    Intercompany Transactions

    Uploaded by

    mgplaton11
    lecture notes in business combination about intercompany transactions

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    of 26

    Intercompany

    Transactions
    REVIEW
    How do you prepare
    consolidated financial
    statements at the date of
    acquisition?
    How about preparation
    of consolidated financial
    statements subsequent
    to the date of
    acquisition?
    Intercompany
    sale of inventory
    Intercompany sale of
    inventory: Issues
    1. Sales and cost of sales are recorded twice.
    2. Ending inventory of buyer includes
    unrealized gross profit.
    3. Intercompany inventory overstated if buyer
    still possesses unsold inventory to third
    parties.
    Intercompany sale of inventory:
    Eliminating entries
    Consolidated sales will include only sales
    made to outsiders
    Consolidated cost of sales will include only
    cost of merchandise to outsiders
    Consolidated inventory is valued at the
    cost of the selling affiliate
    PARENT
    Downstream sales Upstream sales
    Affects changes in
    Affects parent’s
    subsidiary’s net assets
    retained earnings only
    which also affects NCI

    SUBSIDIARY
    *
    *

    *
    *
    *
    Intercompany
    sale of PPE
    Intercompany sale of PPE:
    Accounting procedures
    Deferral of gain or loss on sale
    Derecognition of unamortized balance of
    gain or loss upon sale to outsider
    Unamortized balance eliminated in
    consolidating financial statements
    *
    *

    *
    *
    *
    Intercompany
    dividends
    Intercompany dividends
    Consolidated financial statements
    must present as if parent did not
    receive dividends (eliminate
    dividend income, dividend
    receivable, dividend payable)
    Note
    Only eliminate dividend
    distributed/payable to parent from
    subsidiary.
    *

    *
    *
    Intercompany
    bond
    transactions
    Intercompany bonds
    Consolidated financial statements
    must present as if bonds are
    extinguished. (Recognize gain/loss
    on extinguishment and eliminate
    intercompany interest expense
    and interest income)
    Note
    Only eliminate interest
    corresponding to the bonds held
    between parent and subsidiary.
    *
    *

    *
    *
    *

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