AKUNTANSI KEUANGAN LANJUTAN I

Miggu Ke 6-7
Bahan Kajian : Transaksi Laba Antar Perushan-Persediaan
Sub-CPMK :
Mahasiswa mampu:
- menjelaskan pengaruh laba antar perusahaan dari persediaan
dalam menyusun laporan konsolidasi
- menjelaskan konsep-konsep transfer inventory upstream dan
downstream.
- menghitung penyesuaian untuk jumlah noncontrolling interest
dengan adanya laba antar perusahaan
Referensi :
Beams, Anthony, Bettinghaus & Kenneth Smith,
Advanced Accounting, 14E Ed, 2018 – Chapter 4

12/11/2021 1
1: Intercompany Inventory Profits
Intercompany Profit Transactions – Inventories

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Intercompany Transactions
• For consolidated financial statements
• “intercompany balances and transactions shall be
eliminated.” [FASB ASC 810-10-45-1]
• Show income and financial position as if the
intercompany transactions had never taken place.

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Intercompany Sales of Inventory
• Profits on intercompany sales of inventory
• Recognized if goods have been resold to outsiders
• Deferred if the goods are still held in inventory
• Previously deferred profits in beginning inventory
are recognized in the period the goods are sold.
Assuming FIFO
• Beginning inventories are sold
• Ending inventories are from current purchases

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No Intercompany Profits in Inventories
During 2011, Pet sold goods costing $1,000 to its subsidiary, Sim, at a gross profit
of 30%. Sim had none of this inventory on hand at the end of 2011. The
worksheet entry for 2011:

Sales (-R, -SE) 1,429

Cost of sales (-E, +SE) 1,429
Eliminate intercompany sales = $1,000 / (1-30%) = $1,429
All intercompany sales of inventories have been resold to outside parties, so
remove the full sales price from both sales and cost of sales.
Pet's sales are reduced $1,429.
Sim's cost of sales are reduced $1,429.
The same entry is used if Sim sells to Pet.

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Intercompany Profits Only in Ending Inventories

Last year, 2011, Pal sold goods costing $500 to its subsidiary,
Sal, at a gross profit of 25%. Sal had none of this inventory
on hand at the end of 2011.
During 2012, Pal sold additional goods costing $900 to Sal at
a gross profit of 40%. Sal has $200 of these goods on hand at
12/31/2012. Worksheet entries for 2012:

Sales (-R, -SE) 1,500

Cost of sales (-E, +SE) 1,500
Eliminate intercompany sales = $900 / (1-40%) = $1,500
Cost of sales (E, -SE) 80
Inventory (-A) 80
Defer profit in ending inventory = $200 x 40%
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Intercompany Profits Beginning and Ending Inventories
• Last year, 2011, Pam sold goods costing $300 to its subsidiary, Sir, at
mark-up of 25%. Sir had $120 of this inventory on hand at the end of 2011.
• During 2012, Pam sold additional goods costing $500 to Sir at a 30%
mark-up. Sir has $260 of these goods on hand at 12/31/2012. Worksheet
entries for 2012:
Sales (-R, -SE) 650
Cost of sales (-E, +SE) 650
Eliminate intercompany sales = $500 + 30%($500) = $650
Cost of sales (E, -SE) 60
Inventory (-A) 60
Defer profits in ending inventory = $260 x 30%/130%
Investment in Subsidiary (+A) 24
Cost of sales (-E, +SE) 24
Realize profits from beginning inventory = $120 x 25%/125% = $24
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2: Upstream & Downstream Inventory Sales
Intercompany Profit Transactions – Inventories

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 Upstream and Downstream Sales
Downstream Sales

Parent sells to Parent Subsidiary sells to

subsidiary parent
Subsidiary Subsidiary Subsidiary
1 2 3

Upstream Sales

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Intercompany Inventory Sales
• The worksheet entries for eliminating intercompany profits for
downstream sales
Sales (-R, -SE) XXX
Cost of sales (-E, +SE) XXX
For the intercompany sales price
Cost of sales (E, -SE) XX
Inventory (-A) XX
For the profits in ending inventory
Investment in Subsidiary (+A) XX
Cost of sales (-E, +SE) XX
For the profits in beginning inventory (Persediaan DIJUAL INDUK Asset milik Anak)
• For upstream sales, the last entry would include a debit to
noncontrolling interest, sharing the realized profit between
controlling and noncontrolling interests.
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Upstream and Downstream Sales
• Downstream Sales ; Parent income include full amount
of unrealized profit and subsidiary’s income is
unaffected.
• Non controlling interest share is not affected if the
parent included unrealized profit

• Upstream Sales ; The subsidiary’s net income includes

full amount of any unrealized profit, parent’s separate
income unaffected.
• Non controlling interest share maybe affected if
subsidiary’s net income includes unrealized profit.

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Data for Example
• For the year ended 12/31/2011:
• Subsidiary income is $5,200
• Subsidiary dividends are $3,000
• Current amortization of acquisition price is $450
• Intercompany (IC) sales information:
• IC sales during 2011 were $650
• IC profit in ending inventory $60
• IC profit in beginning inventory $24

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Income Sharing with Downstream Sales – PARENT Makes Sale

Subsidiary net income $5,200 CI 80% share

Current amortizations (450) $3,800
Adjusted income $4,750 (60)
24
Defer profits in EI (60) $3,764 Income from subsidiary
Recognize profits in BI 24
Income recognized $4,714 $2,400
NCI 20% share
Subsidiary dividends $3,000 $950
When parent makes the IC sale,
the impact of deferring and
recognizing profits falls all to the
parent. $600
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 Income Sharing with Upstream Sales –
SUBSIDIARY Makes Sale
Subsidiary net income $5,200 CI 80% share
Current amortizations (450) $3,800
Adjusted income $4,750 (48)
19.2
Defer profits in EI (60) $3,771.2 Income from subsidiary
Recognize profits in BI 24
Income recognized $4,714 $2,400
NCI 20% share
Subsidiary dividends $3,000
$950.0
When subsidiary makes the IC sale, the (12.0)
impact of deferring and recognizing
profits is split among controlling and 4.8
noncontrolling interests. $942.8
$600
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3: Unrealized Profits in
Ending Inventories
Intercompany Profit Transactions – Inventories

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Ending Inventory on Hand
• Intercompany profits in ending inventory
• Eliminate at year end
• Working paper entry

Cost of sales (E, -SE) XXX

Inventories (-A) XXX
For the unrealized profit

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 Parent Accounting
• Pot owns 90% of Sot acquired at book value (no
amortizations). During the current year, Sot reported $10,000
income. Pot sold goods to Sot during the year for $15,000
including a profit of $6,250 (downstream sales). Sot still
holds 40% of these goods at the end of the year.
• Unrealized profit in ending inventory
• 40%(6,250) = $2,500
• Pot's Income from Sot
• 90%(10,000) – 2,500 unrealized profits = $6,500
• Noncontrolling interest share
1
• 10%(10,000) = $1,000
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Entries
• Pot's journal entry to record income
Investment in Sot (+A) 6,500
Income from Sot (R, +SE) 6,500
• Worksheet entries to eliminate intercompany sale
and unrealized profits
Sales (-R, -SE) 15,000
Cost of goods sold (-E, +SE) 15,000
Cost of goods sold (E, -SE) 2,500
Inventory (-A) 2,500

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Worksheet – Income Statement
Pot Sot DR CR Consol
Sales $100.0 $50.0 15.0 $135.0
Income from Sot 6.5 6.5 0.0
Cost of sales (60.0) (35.0) 2.5 15.0 (82.5)
Expenses (15.0) (5.0) (20.0)
Noncontrolling interest share 10 1.0 (1.0)
Controlling interest share $31.5 $7.5 $31.5

There would be a credit adjustment to Inventory for $2.5 on the

balance sheet portion of the worksheet.

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What if?
• If the sales had been upstream, by Sot to Pot:
• Unrealized profits in ending inventory
• 40%(6,250) = $2,500
• Pot's Income from Sot
• 90%(10,000 – 2,500) = $6,750
• Noncontrolling interest share
• 10%(10,000 – 2,500) = $750

• Upstream profits impact both:

• Controlling interest share
• Noncontrolling interest share

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4: Recognizing Profits from
Beginning Inventories
Intercompany Profit Transactions – Inventories

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Intercompany Profits in Beginning Inventory

• Unrealized profits in
• ending inventory one year

• Become

• Profits to be recognized in the beginning inventory of the

next year!

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5: Impact on Noncontrolling Interest
Intercompany Profit Transactions – Inventories

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Direction of Sale and NCI
• The impact of unrealized profits in ending inventory
and realizing profits in beginning inventory depends
on the direction of the intercompany sales
• Downstream sales
• Full impact on parent
• Upstream sales
• Share impact between parent and noncontrolling
interest

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 Calculating Income and NCI
• Downstream sales:
• Income from sub
• = CI%(Sub's NI) – Profits in EI + Profits in BI
• NCI share
• = NCI%(Sub's NI)

• Upstream sales:
• Income from sub
• = CI%(Sub's NI – Profits in EI + Profits in BI)
• NCI share
• = NCI%(Sub's NI – Profits in EI + Profits in BI)
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Upstream Example with Amortization
• Perry acquired 70% of Salt on 1/1/2011 for $420 when Salt's equity consisted of
$200 capital stock and $200 retained earnings. Salt's inventory was understated by
$50 and building, with a 20-year life, was understated by $100. Any excess is
goodwill.
2011 2012
Perry Salt Perry Salt
Separate income $1,250 $705 $1,500 $745
Dividends $600 $280 $600 $300

• During 2011, Salt sold goods for $700 to Perry at a 20% markup. $240 of these
goods were in Perry's ending inventory=> Beg inv
• In 2012, Salt sold goods for $900 to Perry at a 25% markup and Perry still had
$100 on hand at the end of the year.

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Analysis and Amortization
Cost of 70% of Salt $420
Implied value of Salt 420/.70 $600
Book value 200 + 200 400
Excess $200

Unamort Amort Unamort Amort Unamort

Allocated to: 1/1/11 2011 1/1/12 2012 12/31/12
Inventory 50 (50) 0 0 0
Building 100 (5) 95 (5) 90
Goodwill 50 0 50 0 50
200 (55) 145 (5) 140

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 2011 Income Sharing (Upstream)
Salt's net income $705 CI 70% share
Current amortizations (55) $455
Adjusted income $650 ($28)
$427 Income from Salt
Defer profits in EI (40)
Income recognized $610 $196

NCI 30% share

Subsidiary dividends $280 $195
($12)
$183

$84
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Perry's 2011 Equity Entries
Investment in Salt (+A) 420
Cash (-A) 420
For acquisition of 70% of Salt
Cash (+A) 196
Investment in Salt (-A) 196
For dividends received
Investment in Salt (+A) 427
Income from Salt (R, +SE) 427
For share of income

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2011 Worksheet Entries (1 of 3)
• 1. Adjust for errors & omissions - none
• 2. Eliminate intercompany profits and losses

Sales (-R, -SE) 700

Cost of sales (-E, +SE) 700
Cost of Sales (E, -SE) 40
Inventory (-A) 40
• 3. Eliminate income & dividends from sub. and bring
Investment account to its beginning balance
Income from Salt (-R, -SE) 427
Dividends (+SE) 196
Investment in Salt (-A) 231
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2011 Entries (2 of 3)
• 4. Record noncontrolling interest in sub's earnings & dividends
Noncontrolling interest share (-SE) 183
Dividends (+SE) 84
Noncontrolling interest (+SE) 99
• 5. Eliminate reciprocal Investment & sub's equity balances
(awal)
Capital stock (-SE) 200
Retained earnings (-SE) 200
Inventory (+A) 50
Building (+A) 100
Goodwill (+A) 50
Investment in Salt (-A) 420
Noncontrolling interest (+SE) (600x30%) 180
Implied value x % non controlling
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2011 Entries (3 of 3)
• 6. Amortize fair value/book value differentials
Cost of sales (E, -SE) 50
Inventory (-A) 50
Depreciation expense (E, -SE) 5
Building (-A) 5

• 7. Eliminate other reciprocal balances – none

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 2012 Income Sharing (Upstream)
Salt's net income $745 CI 70% share
Current amortizations (5) $518
Adjusted income $740 ($14)
$28
Defer profits in EI (20) $532 Income from Salt
Realize profits from BI 40
Income recognized $760 $210
NCI 30% share
Subsidiary dividends $300 $222
($6)
$12
$228

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Perry's 2012 Equity Entries
Cash (+A) 210
Investment in Salt (-A) 210
For dividends received
Investment in Salt (+A) 532
Income from Salt (R, +SE) 532
For share of income

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 2012 Worksheet Entries (1 of 3)
• 1. Adjust for errors & omissions - none
• 2. Eliminate intercompany profits and losses
Sales (-R, -SE) 900
Cost of sales (-E, +SE) 900
Cost of Sales (E, -SE) 25/ 125 x 100 20
Inventory (-A) 20
Investment in Salt (+A) 28
Noncontrolling interest (-SE) 12
Cost of sales (-E, +SE) =>Persediaan awal 40

• 3. Eliminate income & dividends from sub. and bring Investment

Income
accountfrom Saltbeginning
to its (-R, -SE) balance 532
Dividends (+SE) 210
Investment in Salt (-A) 322
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 2012 Entries (2 of 3)
• 4. Record noncontrolling interest in sub's earnings & dividends
Noncontrolling interest share (-SE) 228
Dividends (+SE) 90
Noncontrolling interest (+SE) 138
• 5. Eliminate reciprocal Investment & sub's equity balances
Capital stock (-SE) 200
Retained earnings (-SE) 625
Inventory (+A) 0
Building (+A) 95
Goodwill (+A) 50
Investment in Salt (-A) (so awal
periode) 679
Noncontrolling interest (+SE) 291
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2012 Entries (3 of 3)
• 6. Amortize fair value/book value differentials
Depreciation expense (E, -SE) 5
Building (-A) 5

• 7. Eliminate other reciprocal balances – none

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Separate Income Statement
Pot Sot
Sales $100.0 $50.0
Cost of sales (60.0) (35.0)
Gros Profit 40.0 15.0
Expenses (15.0) (5.0)
Operating Income 25.0 10.0
Income Fr Sot 9.0
Net Income $34.0 $10.0
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