Akuntansi Keuangan Lanjutan II

Modul ke

06 Intercompany Profit Transactions –

Plant Assets
Fakultas

Ekonomi dan Bisnis

Oleh :
Program Studi Yoga Tantular Rachman, S.E., M.Si., Ak.
S1 Akuntansi Dosen Fakultas Ekonomi dan Bisnis
 Intercompany Profits – Plant Assets:
Objectives

1. Assess the impact of intercompany profit on transfers of plant assets

in preparing consolidations working papers.
2. Defer unrealized profits on asset transfers by either the parent or
subsidiary.
3. Recognize realized, previously deferred profits on asset transfers by
the parent or subsidiary.
4. Adjust the calculation of noncontrolling interest amounts in the
presence of intercompany profits on asset transfers.
1: Transfers of Plant Assets
Intercompany Profit Transactions – 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 noncontrolling interest if upstream
sale)
• Recognize the previously deferred gain or loss
 Intercompany Fixed Asset Sales
Intercompany sales of depreciable fixed assets (1):

• In year of intercompany sale

• Defer any gain or loss
• Restate fixed asset to cost
• dr. Gain on sale of fixed asset xxx
• Cr. Fixed asset xxx
• Dr. Accumulated depreciation xxx
• Cr. Depreciation expense xxx
 Intercompany Fixed Asset Sales
Intercompany sales of depreciable fixed assets (2):
• 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
• Downstream sales:
• Dr. Investment in Subsidiary xxx
• Accumulated depreciation xxx
• cr. fixed asset xxx

• Dr. Accumulated depreciation xxx

• Cr. Depreciation expense xxx
• Upstream sales:
• Dr. Investment in Subsidiary xxx
• Non controlling interests xxx
• Accumulated depreciation xxx
• cr. fixed asset xxx

• Dr. Accumulated depreciation xxx

• Cr. Depreciation expense xxx
 Intercompany Fixed Asset Sales
Intercompany sales of depreciable fixed assets (3):

• In year of sale to outside entity

• Adjust investment account (and noncontrolling interest if
upstream sale)
• Recognize the previously deferred gain or loss
 Intercompany Sale of Land
(Non depreciable asset)

• 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
• Noncontrolling interest share 10%(70) = $7
Elimination entry for 2009 Worksheet:
Dr. Gain on sale of land 10
Cr. Land 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
Dr. Investment in Stan 10
Cr. Land 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
Dr. Investment in Stan 10
Cr. Gain on sale of land 10
2: Deferring Unrealized Profits
Intercompany Profit Transactions – Plant Assets
 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
Gain = 30 / 5 years = $6

• Perry's Income from Soper

80%(70) – 30 + 6 = $32
• Noncontrolling interest share
20%(70) = $14
Elimination entry for 2009 Worksheet

Gain on sale of equipment 30

Equipment 30
Accumulated depreciation 6
Depreciation expense 6
3: Recognizing Realized, Previously
Deferred Profits
Intercompany Profit Transactions – Plant Assets
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 24
Accumulated depreciation 6
Equipment 30
Accumulated depreciation 6
Depreciation expense 6
 Entries (cont.)
Worksheet entries for 2011
Investment in Soper 18
Accumulated depreciation 12
Equipment 30
Accumulated depreciation 6
Depreciation expense 6

Investment in Soper 12
Accumulated depreciation
Worksheet entries for 201218
Equipment 30
Accumulated depreciation 6
Depreciation expense 6
 2013 Calculations
Recognize the remaining deferred gain, with full effect to Perry

• Perry's Income from Soper

80%(90) + 6 = $78
• Noncontrolling interest share
20%(90) = $18

Elimination entries for 2013 Worksheet

Investment in Soper 6
Accumulated depreciation 24
Equipment 30
Accumulated depreciation 6
Depreciation expense 6
4: Impact on Noncontrolling Interest
Intercompany Profit Transactions – Plant Assets
 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
noncontrolling interests

Upstream sales impact noncontrolling 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
• Gain = 40 / 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 noncontrolling interests
• Pail's Income from Shovel
70%(80 + 8) = $61.6
• Noncontrolling interest share
30%(80 + 8) = $26.4
 2010 Worksheet Entries

Investment in Shovel 22.4

Noncontrolling interest 9.6
Elimination entry for Worksheets in 2010
Accumulated depreciation 8.0
Equipment 40.0
Accumulated depreciation 8.0
Depreciation expense 8.0
 2011 Worksheet Entries

Investment in Shovel 16.8

Noncontrolling interests 7.2
Worksheet entries for 2011
Accumulated depreciation 16.0
Equipment 40
Accumulated depreciation 8.0
Depreciation expense 8.0
 2012 Worksheet Entries

Investment in Shovel 11.2

Noncontrolling interest 4.8
Worksheet entries
Accumulated depreciation for 2012 24.0
Equipment 40.0
Accumulated depreciation 8.0
Depreciation expense 8.0
 2013 Calculations
• Recognize the remaining deferred gain, sharing the impact with
controlling and noncontrolling 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 5.6
Noncontrolling interests 2.4
Accumulated depreciation 32.0
Equipment 40.0
Accumulated depreciation 8.0
Gain on sale of equipment 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 XXX

Accumulated depreciation xxx

Depreciation expense xxx