AFM491 Lecture Notes - Lecture 11: Consolidated Financial Statement, Deferred Tax, Deferred Income

• School: University of Waterloo
• Department: Accounting & Financial Management
• Course: AFM491
• Professor: Robert Ducharme

Document Summary

Income statement: balance sheet, profit margin on assets, can not recognize the profit until sold to outsider, must eliminate profit margin and profit amount. Intercompany sales: eliminate sale and purchase, revenue, eliminate sale value that was recognized when sub sold to parent, expense, eliminate marked up value when inventory was sold to third party. Intercompany land transactions: must track original cost and unrealized gain or loss, eliminate unrealized intercompany gain or loss, eliminate markup every subsequent period until it is sold to a final party. Long periods: never depreciated, report as if transaction never took place. First year: same adjustment as ending inventory, reduce asset and the gain. Increase deferred tax asset and decrease income tax expense. Intercompany ppe (depreciable property: eliminate gain or loss on selling. Same adjustment as ending inventory: correct depreciation going forward, depreciation should be on original cost, decrease depreciation by: depreciation on higher ppe - depreciation on lower.