Management and Organizational Studies 4465A/B Lecture Notes - Lecture 6: Equity Method, Matching Principle, Historical Cost
19 Apr 2019
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Chapter 6 - intercompany inventory and land profits: parents and subsidiaries can have sales between them and if balances aren"t paid, the transactions can give rise to intercompany balances (receivables and payables) Intercompany transactions are recorded on both entity"s financial statements and income tax returns. Intercompany management fees - often the parent will charge its subsidiary companies a management fee as means of allocating head office cost to all the companies within the group. Intercompany rentals - occasionally, buildings or equipment owned by one company are used by another company within the group with a corresponding rental change. Three types of unrealized intercompany profits (losses) that are eliminated: profits in inventory, profits in non-depreciable assets, profits in depreciable assets. Downstream transactions - when the parent sells to its subsidiary. Income tac will be expensed when the profit is realized in accordance with the matching principle. Equity method: to report % of the reported income of subsidiary:
