Intercompany Fixed Asset Transactions

Question 1

What accounts do intercompany fixed asset transactions affect?

Answer 1

1. ) Fixed Assets - Cost
2. A/D
3. ) Depreciation Expense/Accumulated Depreciation

Question 2

In an Intercompany Fixed Asset transaction, what is a quick way to check the difference in depreciation taken by the buyer and seller>

Answer 2

The intercompany gain on the date of sale divided by the remaining useful life of the asset

Question 3

In subsequent years after an Intercompany fixed asset transaction, what intercompany adjustments will have to continually be made?

Answer 3

1. ) Gain loss will be corrected in year 1, no entry needed
2. ) Cost will continue to be adjusted year after year. The carrying company will not adjust the asset as it is a topside entry
3. ) A/D will have to continue to be adjusted year after year.
4. ) Depreciation Expense - buying affiliate will have the incorrect cost, therefore misstated DE. There will be an adjustment year after year for this

Question 4

What is the eliminating entry for consolidating purposes that would be necessary immediately following an intercompany sale of a fixed asset at a gain?

Answer 4

DR: Fixed Asset
to reestablish original cost from non-affiliate.
DR: Gain
to eliminate intercompany gain on sale.
CR: Accumulated Depreciation
to reestablish accumulated depreciation
written off by selling affiliate

Question 5

How is a gain or loss on an intercompany sale of a fixed asset confirmed (recognized) for consolidated statement purposes?

Answer 5

A gain or loss on an intercompany sale of a fixed asset is confirmed through the depreciation expense taken each period by the buying affiliate on the intercompany profit or loss. When the sale was at a gain (loss), the buying affiliate will take more (less) depreciation than the selling affiliate would have taken. That difference (each period) confirms a part of the gain or loss each period

Question 6

What effect does an intercompany sale of a fixed asset by a less than 100% owned subsidiary to a parent have on the consolidated financial statements that is different than the sale by a parent to a subsidiary or by a 100% owned subsidiary to a parent?

Answer 6

In all cases the full amount of any intercompany gain or loss will be eliminated; however, if the sale is from a less-than-100%-owned subsidiary, the gain or loss (and subsequent elimination adjustments of depreciation expense) will be allocated on the worksheet between the parent and the noncontrolling interest in proportion to their ownership percentages

Question 7

If not eliminated, what effect will the intercompany sale of a fixed asset at a loss have on the reported value of the fixed asset for consolidated statement purposes?

Answer 7

Unless the appropriate eliminating entry is made, the intercompany sale of a fixed asset at a loss will result in an understatement of the value of the fixed asset on consolidated financial statements

Question 8

If not eliminated, what effect will the intercompany sale of a fixed asset at a gain have on the reported value of the fixed asset for consolidated statement purposes?

Answer 8

Unless the appropriate eliminating entry is made, the intercompany sale of a fixed asset at a gain will result in an overstatement of the value of the fixed asset on consolidated financial statements