Advanced Accounting

Thirteenth Edition

Chapter 6
Intercompany Profit
Transactions
Plant Assets
ACT 302 Z
Genap 2020/2021
HSD

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Intercompany Profit Transactions – Plant
Assets: Objectives
6.1 Assess the impact of intercompany profit on
transfers of plant assets on consolidated financial
statements.
6.2 Defer unrealized profits on plant asset transfers by
either the parent or subsidiary.
6.3 Recognize realized, previously deferred profits on
plant asset transfers.
6.4 Adjust the calculations of noncontrolling interest
share in the presence of intercompany profits on
plant asset transfers.

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Agenda: Gain
DownStream
Loss
Non
Depreciable
Gain
UpStream
Loss
Plant Asset
Gain
DownStream
Loss
Depreciable
Gain
UpStream
Loss

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6.1: Non Depreciable Plant Assets
Intercompany Profit Transactions – Plant Assets

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Intercompany Fixed Asset Sales
Intercompany sales of NONDEPRECIABLE fixed assets:
A. In year of intercompany sale
–Defer any gain or loss
–Restate fixed asset to cost
B. 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
C. In year of sale to outside entity
– Adjust investment account (and noncontrolling interest if
upstream sale)
– Recognize the previously deferred gain or loss

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Unrealized Profits on Fixed Assets
Unrealized profit or loss on nondepreciable fixed
assets
– Defer in year of intercompany sale
– Continue deferring by adjusting the investment
in subsidiary (and noncontrolling interest if
upstream)
– Recognize full profit or loss upon resale to
outside entity

• Defer Gain
B • Recognize
or Loss • No impact deferred
Gain/Loss

A C

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Intercompany Land Sales
The worksheet entries for eliminating intercompany profits
for downstream sales (assuming GAIN)
A. In year of intercompany sale
Gain on sale of land (-Ga, -SE) XXX blank
Land (-A) blank XXX
B. In years of continued ownership
Investment in Subsidiary (+A) XXX blank
Land (-A) Blank XXX
C. In year of sale to outside entity
Investment in Subsidiary (+A) XXX Blank
Gain on sale of land (+Ga, +SE) blank XXX

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Intercompany Land Sales
The worksheet entries for eliminating intercompany profits
for upstream sales (assuming GAIN)
A. In year of intercompany sale
Gain on sale of land (-Ga, -SE) XXX blank
Land (-A) blank XXX
B. In years of continued ownership
Investment in Subsidiary (+A) XXX blank
Noncontrolling Interest XXX
Land (-A) Blank XXX
C. In year of sale to outside entity
Investment in Subsidiary (+A) XXX Blank
Noncontrolling Interest XXX
Gain on sale of land (+Ga, +SE) blank XXX

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Intercompany Sale of Land
Pop owns 90% of Son,
Pop
acquired at cost equal to
fair value. NCI

In 2016, Pop sells 90%

2016 Sell to Son
Gain: $20.000
(downstream) land to Son 10%
and records a $20 gain.
Son's separate income was 2017, 2018, 2019

$140 in 2016 up to 2020 Son

and assuming no dividend.
In 2020, Son sells the
land to an outside entity at
a $30 gain. 2020 Sold to outsider

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 Intercompany Sale of Land
Income calculation - DownStream
•Defer Gain
B •Recognize
or Loss •No impact deferred
Gain/Loss

A C

2016 blank Pop’s 90% NCI 10%

Son's net income $140 $126 $14
Defer gain of land $20 -$20
Income $106 $14

2017, 2018, 2019 blank Pop’s 90% NCI 10%

Son's net income $140 $126 $14

2020 blank Pop’s 90% NCI 10%

Son's net income $140 $126 $14
Recognized deferred gain $20 +$20
Income $146 $14

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Intercompany Sale of Land
2016 - First Year – Elimination Entry (1 of 2)

1. Adjust for errors & omissions – none

2. Eliminate intercompany profits and losses

Gain on sale of land (-Ga, -SE) 20
Land (-A) 20

3. Eliminate income & dividends from sub. and bring

Investment account to its beginning balance
Income from Son (-R, -SE) 106
Investment in Son (-A) blank 106

4. Record noncontrolling interest in sub's earnings & dividends

Noncontrolling interest share (-SE) 14
Noncontrolling interest (+SE) blank 14

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Intercompany Sale of Land
2016 - First Year – Elimination Entry (2 of 2)
5. Eliminate reciprocal Investment & sub's equity balances
Capital stock (-SE) Xxx blank
Retained earnings (-SE) Xxx blank
Investment in Sun (-A) blank Xxx
Noncontrolling interest (+SE) blank Xxx

6. Amortize fair value/book value differentials – if any

7. Eliminate other reciprocal balances – if any

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Intercompany Sale of Land
2017/2018/2019 - Years Subsequent to Intercompany Sale

1. Adjust for errors & omissions – none

2. Eliminate intercompany profits and losses
Investment in Son (+A) 20
Land (-A) 20

3. Eliminate income & dividends from sub. and bring

Investment account to its beginning balance
Income from Son (-R, -SE) 126
Investment in Son (-A) blank 126

4. Record noncontrolling interest in sub's earnings & dividends

Noncontrolling interest share (-SE) 14
Noncontrolling interest (+SE) blank 14
5. 6. 7. as usual and if any
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Intercompany Sale of Land
2020 - Sale in Subsequent Year to Outside Entity

1. Adjust for errors & omissions – none

2. Eliminate intercompany profits and losses
Investment in Son (+A) 20
Gain on sale of land (Ga, +SE) 20
3. Eliminate income & dividends from sub. and bring
Investment account to its beginning balance
Income from Son (-R, -SE) 146
Investment in Son (-A) blank 146

4. Record noncontrolling interest in sub's earnings & dividends

Noncontrolling interest share (-SE) 14
Noncontrolling interest (+SE) blank 14

5. 6. 7. as usual and if any

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 2020 Sold to outsider

Intercompany Sale of Land

Pop owns 90% of Son,
2017, 2018, 2019

Pop
acquired at cost equal to
fair value. NCI

In 2016, Son sells 90%

2016 Sell to Pop
Gain: $20.000
(upstream) land to Pop and 10%
records a $20 gain. Son's
separate income was $140
in 2016 up to 2020 and Son
assuming no dividend.
In 2020, Pop sells the
land to an outside entity at
a $30 gain.

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 Intercompany Sale of Land
Income calculation - UpStream
•Defer Gain
B •Recognize
or Loss •No impact deferred
Gain/Loss

A C

2016 blank Pop’s 90% NCI 10%

Son's net income $140 $126 $14
Defer gain of land $20 -$18 -$2
Income $108 $12

2017, 2018, 2019 blank Pop’s 90% NCI 10%

Son's net income $140 $126 $14

2020 blank Pop’s 90% NCI 10%

Son's net income $140 $126 $14
Recognized deferred gain $20 +$18 +$2
Income $144 $16

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Intercompany Sale of Land
2016 - First Year – Elimination Entry (1 of 2)
1. Adjust for errors & omissions – none
2. Eliminate intercompany profits and losses
Gain on sale of land (-Ga, -SE) 20
Land (-A) 20
3. Eliminate income & dividends from sub. and bring
Investment account to its beginning balance
Income from Son (-R, -SE) 108
Investment in Son (-A) blank 108
4. Record noncontrolling interest in sub's earnings & dividends
Noncontrolling interest share (-SE) 12
Noncontrolling interest (+SE) blank 12

5. 6. 7. as usual and if any

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Intercompany Sale of Land
2017/2018/2019 - Years Subsequent to Intercompany Sale (1 of 2)

1. Adjust for errors & omissions – none

2. Eliminate intercompany profits and losses
Investment in Son (+A) 18
Noncontrolling interest 2
Land (-A) 20
3. Eliminate income & dividends from sub. and bring
Investment account to its beginning balance
Income from Son (-R, -SE) 126
Investment in Son (-A) blank 126
4. Record noncontrolling interest in sub's earnings & dividends
Noncontrolling interest share (-SE) 14
Noncontrolling interest (+SE) blank 14
5. 6. 7. as usual and if any
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Intercompany Sale of Land
2020 - Sale in Subsequent Year to Outside Entity (1 of 2)
1. Adjust for errors & omissions – none
2. Eliminate intercompany profits and losses
Investment in Son (+A) 18
Noncontrolling interest 2
Gain on sale of land (Ga, +SE) 20
3. Eliminate income & dividends from sub. and bring
Investment account to its beginning balance
Income from Son (-R, -SE) 144
Investment in Son (-A) blank 144

4. Record noncontrolling interest in sub's earnings & dividends

Noncontrolling interest share (-SE) 16
Noncontrolling interest (+SE) blank 16

5. 6. 7. as usual and if any

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6.2: Depreciable Fixed Assets
Intercompany Profit Transactions – Plant Assets

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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

• Defer Gain or B • Recognize any

Loss unamortized
• Recognize Gain/Loss
partially
Gain/Loss over
remaining life
asset
A C
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Downstream - End of the Year Cost: $90,000
Acc Dep: $40,000

Pam owns 80% of Sun, Selling Price: $80,000

acquired at cost equal to

fair value. Pam Cost: $90,000
On 12/31/2016, Pam Acc Dep: $40,000
BV: $50,000
sells machinery to Sun. NCI

The machinery has a 80%

31/12/16
remaining life of 5 years 20%
Sell to Sun
from 12/31/2016. Sun Selling Price: $80,000
BV: $50,000
disposes of the machinery Gain: $30.000
Sun
at book value at the end of
5 years.
Sun's separate income
always $100 and assuming
no dividend
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Downstream Example – End of Year
To record the sale and purchase of machinery Blank Blank
PAM’S BOOKS Blank Blank
Cash (+A) $80,000 Blank
Accumulated Depreciation (+A) $40,000 Blank
Machinery (-A) Blank $90,000
Gain on sale of machinery (Ga, +SE) Blank $30,000
Blank Blank Blank
SUN‘S BOOKS Blank Blank
Machinery (+A) $80,000 Blank
Cash (-A) Blank $80,000

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PAM’S BOOKS PAM SUN
Book value 31/12/16 $50,000 $80,000
Usefull life 5 yrs 5 yrs
Depre exp per year $10,000 $16,000
Journal Cost from outside consol
Dr. Depre exp M 10k
Sun Record:
Cr. Acc dep M 10k Dr. Depre exp M 16k
Cr. Acc dep M 16k
Journal Eliminations:
Dr. Acc dep M 6k
Cr. Depre exp M 6k

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 Intercompany Sale of Machine
Income calculation - DownStream

• Defer Gain or
B • Recognize
Loss • Recognize any
partially unamortized
Gain/Loss over Gain/Loss
remaining life
asset
A C

Machine sold 31/12/16 blank Pam’s 80% NCI 20%

Sun's net income $100 $80 $20
Defer gain of machine $30 -$30
Income $50 $20
2017 up to 2021 blank Pam’s 80% NCI 20%
Sun's net income $100 $80 $20
Piecemeal recognition of gain $6 +$6
Income $86 $20
>2021 blank Pam’s 80% NCI 20%
Sun's net income $100 $80 $20
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Intercompany Sale of Machine sold 31/12/16
2016 - First Year – Elimination Entry
1. Adjust for errors & omissions – none
2. Eliminate intercompany profits and losses
Gain on sale of Machinery (-Ga, -SE) 30
Machinery(-A) 30

3. Eliminate income & dividends from sub. and bring

Investment account to its beginning balance
Income from Sun (-R, -SE) 50
Investment in Sun (-A) blank 50

4. Record noncontrolling interest in sub's earnings & dividends

Noncontrolling interest share (-SE) 20
Noncontrolling interest (+SE) blank 20

5. 6. 7. as usual and if any

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Intercompany Sale of Machine sold 31/12/16
2017 - Years Subsequent to Intercompany Sale
1. Adjust for errors & omissions – none
2. Eliminate intercompany profits and losses
Investment in Sun (+A) 30
Machinery (-A) 30
Accumulated depreciation Machinery 6
Depreciation Exp - Machinery 6
3. Eliminate income & dividends from sub. and bring
Investment account to its beginning balance
Income from Sun (-R, -SE) 86
Investment in Sun (-A) blank 86
4. Record noncontrolling interest in sub's earnings & dividends
Noncontrolling interest share (-SE) 20
Noncontrolling interest (+SE) blank 20
5. 6. 7. as usual and if any
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Intercompany Sale of Machine sold 31/12/16
2018 - Years Subsequent to Intercompany Sale
1. Adjust for errors & omissions – none
2. Eliminate intercompany profits and losses
Investment in Sun (+A) 24
Accumulated depreciation Machinery 6
Machinery (-A) 30
Accumulated depreciation Machinery 6
Depreciation Exp - Machinery 6
3. Eliminate income & dividends from sub. and bring
Investment account to its beginning balance
Income from Sun (-R, -SE) 86
Investment in Sun (-A) blank 86
4. Record noncontrolling interest in sub's earnings & dividends
Noncontrolling interest share (-SE) 20
Noncontrolling interest (+SE) blank 20
5. 6. 7. as usual and if any
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Intercompany Sale of Machine sold 31/12/16
2019 - Years Subsequent to Intercompany Sale
1. Adjust for errors & omissions – none
2. Eliminate intercompany profits and losses
Investment in Sun (+A) 18
Accumulated depreciation Machinery 12
Machinery (-A) 30
Accumulated depreciation Machinery 6
Depreciation Exp - Machinery 6
3. Eliminate income & dividends from sub. and bring
Investment account to its beginning balance
Income from Sun (-R, -SE) 86
Investment in Sun (-A) blank 86
4. Record noncontrolling interest in sub's earnings & dividends
Noncontrolling interest share (-SE) 20
Noncontrolling interest (+SE) blank 20
5. 6. 7. as usual and if any
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Intercompany Sale of Machine sold 31/12/16
2020 - Years Subsequent to Intercompany Sale
1. Adjust for errors & omissions – none
2. Eliminate intercompany profits and losses
Investment in Sun (+A) 12
Accumulated depreciation Machinery 18
Machinery (-A) 30
Accumulated depreciation Machinery 6
Depreciation Exp - Machinery 6
3. Eliminate income & dividends from sub. and bring
Investment account to its beginning balance
Income from Sun (-R, -SE) 86
Investment in Sun (-A) blank 86
4. Record noncontrolling interest in sub's earnings & dividends
Noncontrolling interest share (-SE) 20
Noncontrolling interest (+SE) blank 20
5. 6. 7. as usual and if any
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Intercompany Sale of Machine sold 31/12/16
2021 - Years Subsequent to Intercompany Sale
1. Adjust for errors & omissions – none
2. Eliminate intercompany profits and losses
Investment in Sun (+A) 6
Accumulated depreciation Machinery 24
Machinery (-A) 30
Accumulated depreciation Machinery 6
Depreciation Exp - Machinery 6
3. Eliminate income & dividends from sub. and bring
Investment account to its beginning balance
Income from Sun (-R, -SE) 86
Investment in Sun (-A) blank 86
4. Record noncontrolling interest in sub's earnings & dividends
Noncontrolling interest share (-SE) 20
Noncontrolling interest (+SE) blank 20
5. 6. 7. as usual and if any
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Intercompany Sale of Machine sold 31/12/16
2022 - Years Subsequent to Intercompany Sale
1. Adjust for errors & omissions – none
2. Eliminate intercompany profits and losses
Accumulated depreciation Machinery 30
Machinery (-A) 30

3. Eliminate income & dividends from sub. and bring

Investment account to its beginning balance
Income from Sun (-R, -SE) 80
Investment in Sun (-A) blank 80
4. Record noncontrolling interest in sub's earnings & dividends
Noncontrolling interest share (-SE) 20
Noncontrolling interest (+SE) blank 20
5. 6. 7. as usual and if any
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Downstream - Beginning of the Year Cost: $90,000
Acc Dep: $40,000

Pam owns 80% of Sun, Selling Price: $80,000

acquired at cost equal to

fair value. Pam Cost: $90,000
On 01/01/2016, Pam Acc Dep: $40,000
BV: $50,000
sells machinery to Sun. NCI

The machinery has a 80%

1/1/16
remaining life of 5 years 20%
Sell to Sun
from 01/01/2016. Sun Selling Price: $80,000
BV: $50,000
disposes of the machinery Gain: $30.000
Sun
at book value at the end of
5 years.
Sun's separate income
alway $100 and assuming
no dividend
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 Intercompany Sale of Machine
Income calculation - DownStream

• Defer Gain or
B • Recognize
Loss • Recognize any
partially unamortized
Gain/Loss over Gain/Loss
remaining life
asset
A C

Machine sold 01/01/16 blank Pam’s 80% NCI 20%

Sun's net income $100 $80 $20
Defer gain of machine $30 -$30
Piecemeal recognition of gain $6 +$6
Income $56 $20
2017 up to 2020 blank Pam’s 80% NCI 20%
Sun's net income $100 $80 $20
Piecemeal recognition of gain $6 +$6
Income $86 $20

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Intercompany Sale of Machine sold 1/1/16
2016 - First Year – Elimination Entry
1. Adjust for errors & omissions – none
2. Eliminate intercompany profits and losses
Gain on sale of Machinery (-Ga, -SE) 30
Machinery(-A) 30
Accumulated depreciation Machinery 6
Depreciation Exp - Machinery 6
3. Eliminate income & dividends from sub. and bring
Investment account to its beginning balance
Income from Sun (-R, -SE) 56
Investment in Sun (-A) blank 56
4. Record noncontrolling interest in sub's earnings & dividends
Noncontrolling interest share (-SE) 20
Noncontrolling interest (+SE) blank 20
5. 6. 7. as usual and if any
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Intercompany Sale of Machine sold 1/1/16
2017 - Years Subsequent to Intercompany Sale
1. Adjust for errors & omissions – none
2. Eliminate intercompany profits and losses
Investment in Sun (+A) 24
Accumulated depreciation Machinery 6
Machinery (-A) 30
Accumulated depreciation Machinery 6
Depreciation Exp - Machinery 6
3. Eliminate income & dividends from sub. and bring
Investment account to its beginning balance
Income from Sun (-R, -SE) 86
Investment in Sun (-A) blank 86
4. Record noncontrolling interest in sub's earnings & dividends
Noncontrolling interest share (-SE) 20
Noncontrolling interest (+SE) blank 20
5. 6. 7. as usual and if any
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Intercompany Sale of Machine sold 1/1/16
2018 - Years Subsequent to Intercompany Sale
1. Adjust for errors & omissions – none
2. Eliminate intercompany profits and losses
Investment in Sun (+A) 18
Accumulated depreciation Machinery 12
Machinery (-A) 30
Accumulated depreciation Machinery 6
Depreciation Exp - Machinery 6
3. Eliminate income & dividends from sub. and bring
Investment account to its beginning balance
Income from Sun (-R, -SE) 86
Investment in Sun (-A) blank 86
4. Record noncontrolling interest in sub's earnings & dividends
Noncontrolling interest share (-SE) 20
Noncontrolling interest (+SE) blank 20
5. 6. 7. as usual and if any
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Intercompany Sale of Machine sold 1/1/16
2019 - Years Subsequent to Intercompany Sale
1. Adjust for errors & omissions – none
2. Eliminate intercompany profits and losses
Investment in Sun (+A) 12
Accumulated depreciation Machinery 18
Machinery (-A) 30
Accumulated depreciation Machinery 6
Depreciation Exp - Machinery 6
3. Eliminate income & dividends from sub. and bring
Investment account to its beginning balance
Income from Sun (-R, -SE) 86
Investment in Sun (-A) blank 86
4. Record noncontrolling interest in sub's earnings & dividends
Noncontrolling interest share (-SE) 20
Noncontrolling interest (+SE) blank 20
5. 6. 7. as usual and if any
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Intercompany Sale of Machine sold 1/1/16
2020 - Years Subsequent to Intercompany Sale
1. Adjust for errors & omissions – none
2. Eliminate intercompany profits and losses
Investment in Sun (+A) 6
Accumulated depreciation Machinery 24
Machinery (-A) 30
Accumulated depreciation Machinery 6
Depreciation Exp - Machinery 6
3. Eliminate income & dividends from sub. and bring
Investment account to its beginning balance
Income from Sun (-R, -SE) 86
Investment in Sun (-A) blank 86
4. Record noncontrolling interest in sub's earnings & dividends
Noncontrolling interest share (-SE) 20
Noncontrolling interest (+SE) blank 20
5. 6. 7. as usual and if any
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Intercompany Sale of Machine sold 1/1/16
2021 - Years Subsequent to Intercompany Sale
1. Adjust for errors & omissions – none
2. Eliminate intercompany profits and losses
Accumulated depreciation Machinery 30
Machinery (-A) 30

3. Eliminate income & dividends from sub. and bring

Investment account to its beginning balance
Income from Sun (-R, -SE) 80
Investment in Sun (-A) blank 80
4. Record noncontrolling interest in sub's earnings & dividends
Noncontrolling interest share (-SE) 20
Noncontrolling interest (+SE) blank 20
5. 6. 7. as usual and if any
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Upstream - Beginning of the Year
Pam owns 80% of Sun,
acquired at cost equal to
fair value. Pam 1/1/16
On 01/01/2016, Sun Sell to Pam
Selling Price: $80,000
sells machinery to Pam. NCI
BV: $50,000
Gain: $30.000
The machinery has a 80%
remaining life of 5 years 20%
from 01/01/2016. Pam
disposes of the machinery
Sun
at book value at the end of Cost: $90,000
5 years. Acc Dep: $40,000
Selling Price: $80,000

Sun's separate income

alway $100 and assuming
no dividend
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 Intercompany Sale of Machine
Income calculation - UpStream

• Defer Gain or
B • Recognize
Loss • Recognize any
partially unamortized
Gain/Loss over Gain/Loss
remaining life
asset
A C

Machine sold 01/01/16 blank Pam’s 80% NCI 20%

Sun's net income $100 $80 $20
Defer gain of machine $30 -$24 -6
Piecemeal recognition of gain $6 +$4,8 +$1,2
Income $60,8 $15,2
2017 up to 2020 blank Pam’s 80% NCI 20%
Sun's net income $100 $80 $20
Piecemeal recognition of gain $6 +$4,8 +$1,2
Income $84,8 $21,2

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Intercompany Sale of Machine sold 1/1/16
2016 - First Year – Elimination Entry
1. Adjust for errors & omissions – none
2. Eliminate intercompany profits and losses
Gain on sale of Machinery (-Ga, -SE) 30
Machinery(-A) 30
Accumulated depreciation Machinery 6
Depreciation Exp - Machinery 6
3. Eliminate income & dividends from sub. and bring
Investment account to its beginning balance
Income from Sun (-R, -SE) 60,8
Investment in Sun (-A) blank 60,8
4. Record noncontrolling interest in sub's earnings & dividends
Noncontrolling interest share (-SE) 15,2
Noncontrolling interest (+SE) blank 15,2
5. 6. 7. as usual and if any
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Intercompany Sale of Machine sold 1/1/16
2017 - Years Subsequent to Intercompany Sale
1. Adjust for errors & omissions – none
2. Eliminate intercompany profits and losses
Investment in Sun (+A) 19,2
Noncontrolling interest 4,8
Accumulated depreciation Machinery 6
Machinery (-A) 30
Accumulated depreciation Machinery 6
Depreciation Exp - Machinery 6

3. Eliminate income & dividends from sub. and bring

Investment account to its beginning balance
Income from Sun (-R, -SE) 84,8
Investment in Sun (-A) blank 84,8

4. Record noncontrolling interest in sub's earnings & dividends

Noncontrolling interest share (-SE) 21,2
Noncontrolling interest (+SE) blank 21,2
5. 6. 7. as usual and if any
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Intercompany Sale of Machine sold 1/1/16
2018 - Years Subsequent to Intercompany Sale
1. Adjust for errors & omissions – none
2. Eliminate intercompany profits and losses
Investment in Sun (+A) 14,4
Noncontrolling interest 3,6
Accumulated depreciation Machinery 12
Machinery (-A) 30
Accumulated depreciation Machinery 6
Depreciation Exp - Machinery 6

3. Eliminate income & dividends from sub. and bring

Investment account to its beginning balance
Income from Sun (-R, -SE) 84,8
Investment in Sun (-A) blank 84,8

4. Record noncontrolling interest in sub's earnings & dividends

Noncontrolling interest share (-SE) 21,2
Noncontrolling interest (+SE) blank 21,2
5. 6. 7. as usual and if any
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Intercompany Sale of Machine sold 1/1/16
2019 - Years Subsequent to Intercompany Sale
1. Adjust for errors & omissions – none
2. Eliminate intercompany profits and losses
Investment in Sun (+A) 9,6
Noncontrolling interest 2,4
Accumulated depreciation Machinery 18
Machinery (-A) 30
Accumulated depreciation Machinery 6
Depreciation Exp - Machinery 6

3. Eliminate income & dividends from sub. and bring

Investment account to its beginning balance
Income from Sun (-R, -SE) 84,8
Investment in Sun (-A) blank 84,8

4. Record noncontrolling interest in sub's earnings & dividends

Noncontrolling interest share (-SE) 21,2
Noncontrolling interest (+SE) blank 21,2
5. 6. 7. as usual and if any
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Intercompany Sale of Machine sold 1/1/16
2020 - Years Subsequent to Intercompany Sale
1. Adjust for errors & omissions – none
2. Eliminate intercompany profits and losses
Investment in Sun (+A) 4,8
Noncontrolling interest 1,2
Accumulated depreciation Machinery 24
Machinery (-A) 30
Accumulated depreciation Machinery 6
Depreciation Exp - Machinery 6

3. Eliminate income & dividends from sub. and bring

Investment account to its beginning balance
Income from Sun (-R, -SE) 84,8
Investment in Sun (-A) blank 84,8

4. Record noncontrolling interest in sub's earnings & dividends

Noncontrolling interest share (-SE) 21,2
Noncontrolling interest (+SE) blank 21,2
5. 6. 7. as usual and if any
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Intercompany Sale of Machine sold 1/1/16
2021 - Years Subsequent to Intercompany Sale
1. Adjust for errors & omissions – none
2. Eliminate intercompany profits and losses
Accumulated depreciation Machinery 30
Machinery (-A) 30

3. Eliminate income & dividends from sub. and bring

Investment account to its beginning balance
Income from Sun (-R, -SE) 80
Investment in Sun (-A) blank 80
4. Record noncontrolling interest in sub's earnings & dividends
Noncontrolling interest share (-SE) 20
Noncontrolling interest (+SE) blank 20
5. 6. 7. as usual and if any
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6.3: Recognizing Realized, Previously
Deferred Profits
Intercompany Profit Transactions – Plant Assets

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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

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6.4: Impact on Noncontrolling Interest
Intercompany Profit Transactions – Plant Assets

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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!

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Copyright

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