BUS 420 Chapter Notes - Chapter 7: Deferred Income, Accounts Payable, Promissory Note
14 Sep 2016
School
Department
Course
Professor
Document Summary
Intercompany profits in depreciable assets and intercompany bondholdings. Parent and subsidiaries often redistribute depreciable and non-depreciable assets among themselves, due to management, income tax, and corporate restructuring. Recorded at the market value of the assets transferred. Seller will record a gain or loss on the sale. The buyer will record the assets at the price it paid, which is often higher than cost. The gain or loss on intercompany asset sales is unrealized to the group until the asset is subsequently sold to a third party or used in producing a product or service that is sold. The effect of the gain or loss is eliminated in the consolidated financial statements. The objective of the elimination is to report as if the transaction between the companies had never taken place. If the transaction involves depreciable assets, there are further adjustments to be considered in the later periods, such as depreciation.
