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Intercompany Asset Sales Explained

The document discusses the accounting procedures for intercompany sales of property, plant, and equipment between affiliated entities, noting that any gains or losses are deferred until the asset is sold to an outside party, and the gain or loss is amortized over the useful life of the asset; it also explains the differences between downstream and upstream sales and how they affect controlling and non-controlling interests.

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Junzen Ralph Yap
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69 views1 page

Intercompany Asset Sales Explained

The document discusses the accounting procedures for intercompany sales of property, plant, and equipment between affiliated entities, noting that any gains or losses are deferred until the asset is sold to an outside party, and the gain or loss is amortized over the useful life of the asset; it also explains the differences between downstream and upstream sales and how they affect controlling and non-controlling interests.

Uploaded by

Junzen Ralph Yap
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd

Jun Zen Ralph V.

Yap BSA – 3rd Year

In a Nutshell

Activity [Link] from the definition of the most essential terms in the course and the
learning exercises that you have done, please feel free to write your arguments or
lessons learned below. I have indicated my arguments or lessons learned.

1. Consolidation process for intercompany sale of fixed assets has similar


accounting procedures with sale of inventories. Realized gain on sale is also
recognized only when the asset is sold to outsiders. (Example)
2. The intercompany sale of PPE varies from intercompany sale of merchandise in
two aspects. First, the intercompany sale of PPE is an unusual transaction
occurred between affiliated entities while intercompany sale frequently occurs.
Second, the relatively long useful lives of fixed assets require passage of many
accounting periods before the gains or losses arising from intercompany sale of
PPE are realized in sale transactions with outsiders while the intercompany
profits arising from the intercompany sale of merchandise requires only short
period of time to realize with outsiders.
3. Intercompany sales of property, plant, and equipment are also identified as either
downstream or upstream like the intercompany sales of merchandise.
4. In a downstream sale of PPE, the gain or loss is adjusted to the controlling
interest only. Thus, non-controlling interest is not affected.
5. In an upstream sale of PPE, the adjustments for the gain or loss are allocated
between the controlling interest and non-controlling interest. Thus, the NCI is
affected of it.
6. The accounting procedure of the gain or loss arising from the intercompany sales
of property, plant, and equipment is deferred until it is sold to the outsiders and
amortized over the asset’s remaining useful life, if the asset is depreciable, and if
not, it is not amortized.
7. If the asset is subsequently sold to an unrelated party or outsiders otherwise
derecognized, the unamortized balance of the deferred gain or loss is recognized
immediately in profit or loss.
8. The unamortized balance of the deferred gain or loss is eliminated when
consolidated financial statements are prepared.
9. When previously unrealized intercompany gains are realized, the effects of the
profit elimination process must be reversed.
10. In an intercompany sale involving depreciable assets, the amount of depreciation
recognized each period on an asset purchased from an affiliated is based on the
intercompany selling price.

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