INTERCOMPANY SALE OF FIXED ASSET

Nondepreciable
LAND

Depreciable
PPE

DOWNSTREAM
seller is the parent, buyer is t
-transfer of fixed asset from
-depreciation recorded by pa
-dep of subs will be based on
-in the POV of the group, the
that should have been record

UPSTREAM
seller is subsidiary, parent is
parent subs
LIGO COMPANY (seller) MEGA COMPANY
DOWNSTREAM
cash 384 machinery
accum dep 144 cash
machinery 432
gain on sale of fixed asset 96

NO MORE DEPRECIATION FOR THIS YEA

OF SALE IS DECEMBER 31,2020

UPSTREAM (buyer)
equipment 372 cash
cash 372 accum dep
equipment
dep ex 93 gain on sale of fixed asset
accum dep 93

2020 ELIMINATING ENTRIES -not recorded in the book, just working paper entries
PRIOIR YEAR
Acquisition date 2015

Share capital 1500

Retained earnings 1700 (squeeze since beg bal ang given for 2020 and 2021)
Goodwill 1800
invt in mega 3500 cost method kaya di nagbabago ever
noncontrolling interest 1500

Subsequent to acquisition date but before 2020

Establishment of beginning balances
Retained earnings (subs) 300
Retained earnings (parent) 210
noncontrolling inetrest 90

Retained earnings 245 (impairment loss pero nominal acct kasi kaya RE na
noncontrolling interest 105 (imp loss pero nominal nga siya kaya sa RE na kapa
Goodwill 350

CURRENT YEAR-2020
Elimination of intercopany transactions
Dividend income (parent) 56 only dividends which is paid by the parent should b
nonconrolling interest 24
Dividends paid (subs) 80

Downstream only sales of fixed asset to an external party are allowed to be on the fs
Gain on sale of fixed asset 96 this gain will be realized once the buyer started de
machinery 48 book value less selling price
accum dep 144

Upstream same procedure sa downstream

Gain on sale of fixed asset 72 Dep cost
equipment 128 useful life
accum dep 200 monthly dep
expired in 2020
accum dep 18 dep ex
dep ex 18
realization of gain on FA thru dep since

Amortization of expense
expenses 50 Net income(loss)
goodwill 50 elim of inter co trans
a.dividend income
Share of NCI in subsidiary's net income(loss) b. djs to interco SELLER
noncontrolling interest 37 unrealized gain on sale
Share of NCI in subsidiary's NI/(loss) 37 realization on sale of FA
amortization of excess
impairment of goodwill
net income(loss) for conso purposes
share of nci
share of CI
2021 Journal Entries
LIGO COMPANY MEGA COMPANY
dep ex 124 dep ex
accum dep 124 accum dep

cost per ligo 372 cost per mega

remaining UL 36 remaining UL
monthly dep 10.33333 monthly dep
no. of months 12 no. of months
2021 dep per books 124 2021 dep per books
(BINENTA NI LIGO OUTSIDE)
Cash 165
accum dep 217
equipment 372
gain on sale of fixed asset 10 (given)

2021 ELIMINATING ENTRIES

acquisition date entries
Share capital 1500
Retained earnings 1700 (squeeze since beg bal ang given for 2020 and 2021)
Goodwill 1800
invt in mega 3500
noncontrolling interest 1500

Establishemnt of beginning balances

Change in subsidiary's RE/OCI from acquisition date until January 1 of the current year
Retained earnings (subsidiary 200
 noncontrolling interest 60
Retained earnings (parent) 140

Intercompany transactions
downstream
Retained eanings 96 (instead of gain on sale of FA)
Machinery 48
Accum dep 144

upstream (since si parent ang buyer, may share siya sa gain on sale of FA ni subs which is the seller)
Retained eanings 50 subsequent year ba kaya hati na sila. Sa acqui date
noncontrolling interest 22
Equipment 128
Accum dep 200

accum dep 18
retained earnings 13
noncontrolling interest 5

no need to have an entry for dividends received because that is already reflected
on the entry for changes in RE

Amortization of excess
Retained earnings 280
noncontrolling interest 120
Goodwill 400

CURRENT YEAR ELIMINATING ENTRIES

Elimination of intercompany trans
Dividend income 35 cost per mega
noncontrolling interest 15 remaining UL
dividends paid 50 monthly dep
no. of months
Realization of gains and losses prior to outside sale 2021 dep per books
Downstream
accum dep 24
Dep ex 24
cost per ligo
Upstream remaining UL
accum dep 24 monthly dep
Dep ex 24 no. of months
2021 dep per books
Realization of gain at the time of outside sale
Upstream
 accum dep 158
equipment 128 mos
gain on sale of FA 30 BV 36
mos expired
Amortization of excess accum dep
NONE cas proceeds
no imp loss of goodwill on 2021 kasi BV date of outside sal
sep book gain on sale
WP gain on sale of FA
Share of NCI in sub's Net Income(loss) conso gain
Share of NCI in subsidiary's net income 151
noncontrolling ineterst 151

Net insome (loss)

elim of inter co trans
a. dividend income
b.unrealized gain on sale of FA (seller)
c. realized gain on sale of FA (seller)
thru dep
thru outside sale
Amort of excess
goodwill imp
Net income(loss) for conso purp
Share on NCI
Share of CI
Nondepreciable
realize gains or losses only by selling

Depreciable
realize gains or losses by depreciation or selling

DOWNSTREAM
seller is the parent, buyer is the subsidiary
-transfer of fixed asset from one entity to another, but still belongs to the group
-depreciation recorded by parent will stop at the date of sale and dep will be continued by the subs
-dep of subs will be based on purchase price
-in the POV of the group, there is no sale, hence there is no gains or losses and the dep
that should have been recorded is still the dep should there be no sale by the parent that occurred

UPSTREAM
seller is subsidiary, parent is buyer
 (buyer)

384 purchase price

384

DEPRECIATION FOR THIS YEAR BY THE BUYER SINCE THE DATE

S DECEMBER 31,2020

(seller)
372
200
equipment 500
gain on sale of fixed asset 72

n for 2020 and 2021)

nagbabago ever

o nominal acct kasi kaya RE na)

nal nga siya kaya sa RE na kapag di na same year ng original recording)

h is paid by the parent should be shown on conso fs

 pretend that intercompany sales never happened
zed once the buyer started depreciating the fixed asset, wala for 2020 since Dec 31,2020 yung sale

Buyer Conso
372 300
36 36
10.33333 8.333333
9 9
93 75 is supposed to be the dep ex recorded should there be no sale that occurred

n of gain on FA thru dep since equip is sold to subs, not outside party

Ligo Mega Total

1950 -20 1930

a.dividend income -56 -56

b. djs to interco SELLER
unrealized gain on sale of -96 -72 -168
realization on sale of FA 18 18
tion of excess
impairment of goodwill -50 -50
me(loss) for conso purposes 1798 -124 1674
37 37
1798 -87 1711
 96
96

384
48
8
12
96

n for 2020 and 2021)

increase as of 01/01/2020 300

 2020 dividends paid -80
2020 net loss -20
net increase as of 01/01/2021 200

ch is the seller)
kaya hati na sila. Sa acqui date lang yung buong gain irerecord kay subs

mega conso
384 288
48 48
8 6
12 12
96 72 should have been
24
72 this should be presented kaya binawasan ng 24

372 300
36 36
10.33333 8.333333
12 12
124 100 should have been
24
100 this should be presented kaya binawasan ng 24
 Ligo Conso
372 300
21 21
217 175
165 165
155 125
10 40
30
40

Ligo Mega Total

700 450 1150

-35 -35
sale of FA (seller)
le of FA (seller)
24 24 48
30 30

0
conso purp 689 504 1193
-151 -151 net income kaya negative kasi credited yun noncontrolling interest)
689 353 1042
share of NCI is removed because only the net income of CI should be shown in conso fs
olling interest)
PROBLEM 3 Page 535
DOWNSTREAM SALE
Prince's ownership 104,000
Outstanding shares 130,000 20x3
80% Cost
accum dep
Original Change Book Value, dec 31
Total Life/revised useful life 8 5 Depreciation
Age - 1 - 1
Remaining life 7 4 20x4
Cost
accum dep
Realixed Balance Book Value, dec 31
Realized loss on sale of equipment 380,000 95,000 285,000 Loss on sale
95,000 190,000 Depreciation

20x5
Cost
accum dep
Book Value, dec 31
Loss on sale
Depreciation

20x3 PARENT'S BOOKS SUBSIDIARY'S BOOKS

Jan1 Equipment 1,280,000
Cash 1,280,000
original acquisition of equip

Dec 31 Dep ex 160,000

Accum dep 160,000

20x4 (year equipment was sold)

Jan 1 Cash 740,000
accum dep 160,000 Equipment
Loss on sale of equipment 380,000
Equipment 1,280,000

Dec 31 Dep ex
20x5
Dec 31 Dep ex

COST METHOD Parent Subs Conso

Operating income 3,270,000
Dividend income 48,000
Net income, books 3,318,000 820,000 4,138,000
Adjustments-CY EE -
Elimination of inter co trans -
a.dividend income - 48,000 - 48,000
(sa seller nirerealize) b. realizated loss on sale - 95,000 - 95,000
amort of excess over book value -
net income, conso 3,175,000 820,000 3,995,000
share of nci - 164,000 - 164,000
shair of ci 3,175,000 656,000 3,831,000

(relized loss on sale)

walang div inc sa equity method

UPSTREAM

20x3 Parent Subs Conso

Cost 1,280,000 1,280,000
accum dep - 160,000 - 160,000
Book Value, dec 31 1,120,000 1,120,000
Depreciation 160,000 160,000

20x4 Parent Subs Conso

Cost 740,000 1,280,000
accum dep - 185,000 - 440,000
Book Value, dec 31 555,000 840,000
Loss on sale 380,000 NONE
Depreciation 185,000 280,000

20x5 Parent Subs Conso

Cost 740,000 1,280,000
accum dep - 370,000 - 720,000
Book Value, dec 31 370,000 560,000
Loss on sale NONE
Depreciation 185,000 280,000

20x3 SUBSIDIARY'S BOOKS PARENT'S BOOKS

Jan1 Equipment 1,280,000
Cash 1,280,000
original acquisition of equip

Dec 31 Dep ex 160,000

Accum dep 160,000

20x4 (year equipment was sold)

Jan 1 Cash 740,000
accum dep 160,000 Equipment
Loss on sale of equipment 380,000
Equipment 1,280,000

Dec 31 Dep ex

20x5
Dec 31 Dep ex

COST METHOD Parent Subs Conso

Operating income 3,270,000
Dividend income 48,000
Net income, books 3,318,000 820,000 4,138,000
Adjustments-CY EE -
Elimination of inter co trans -
a.dividend income - 48,000 - 48,000
(sa seller nirerealize) b. realizated loss on sale - 95,000 - 95,000
amort of excess over book value -
net income, conso 3,270,000 725,000 3,995,000
share of nci - 145,000 - 145,000
shair of ci 3,270,000 580,000 3,850,000
PROBLEM 4 Page 536 DOWNSTREAM
DOWNSTREAM
20x5 PARENT-SELLER Subsidiary's books
Jan 1 Truck 300,000
Cash 300,000

Dec 31 Dep ex 30,000

accum dep 30,000

20x6
Dec 31 Dep ex 30,000
accum dep 30,000

20x7
Dec 31 Dep ex 30,000
accum dep 30,000

20x8 (YEAR OF SALE)

Jan 1 cash 245,000 truck
accum dep 90,000
truck 300,000
gain on sale 35,000

Dec 31 dep ex

20x8 eliminating entries

intercompany transactions
gain on sale of truck 35,000
truck 55,000
accum dep 90,000
Realization of gain/loss
accum dep 5,000 unrealized g
dep ex 5,000 realized thr
unrealized g
realized thru outside sale

20x9 ELIMINATING ENTRIES- prior period 20x9 ELIMINATING ENTR

intercompany transactions
retained earnings 35,000
truck 55,000
accum dep 90,000
Realization of gain/loss Realization of gain/loss
accum dep 5,000 accum dep
retained earnings 5,000

ASSUMING ON 20y0, subs sold the truck to an outside entity

June 30,20y0, sold to outside entity for P150,000. SUBSIDIARY BOOKS

dep ex

cash
accum dep
loss on sale

20y0 ELIMINATING ENTRIES- prior period 20y0 ELIMINATING ENTR

intercompany transactions
retained earnings 35,000
truck 55,000
accum dep 90,000
Realization of gain/loss Realization of gain/loss
accum dep 10,000 accum dep
retained earnings 10,000

accum dep
loss on sale
 Parent Subs Conso
1,280,000 1,280,000
- 160,000 - 160,000
Book Value, dec 31 1,120,000 1,120,000
Depreciation 160,000 160,000

Parent Subs Conso

740,000 1,280,000
- 185,000 - 440,000
Book Value, dec 31 555,000 840,000
Loss on sale 380,000 NONE
Depreciation 185,000 280,000

Parent Subs Conso

740,000 1,280,000
- 370,000 - 720,000
Book Value, dec 31 370,000 560,000
Loss on sale - NONE
Depreciation 185,000 280,000

SUBSIDIARY'S BOOKS

WORKING PAPER
20x4 ADDITIONAL ELIMINATING ENTRIES
Elimination of intercompany trans- currrent y
740,000 Equipment
Cash 740,000 Accum dep
Loss on sale
as if there was no sale that occurred
185,000
accum dep 185,000

Realize gain/loss on sale of fixed asset (loss o

 dep ex
accum dep

20x5 Elimination of intercompany trans- prior yea

185,000 Equipment
accum dep 185,000 Accum dep
Retained earnings
copy lang from last year tapos palitan nomina

EQUITY METHOD Parent Subs Conso Retained earnings

Operating income 3,270,000 accum dep
Investment income 561,000
Net income, books 3,831,000 820,000 Elimination of intercompany trans- currrent y
Adjustments-CY EE Dividend incme
Elimination of inter co trans noncontrolling interest
a. invt inc - 561,000 dividends paid
b.realized los- 95,000
amort of excess over book value Dep ex
net income, conso 3,175,000 820,000 3,995,000 accum dep
share of nci - 164,000 - 164,000
shair of ci 3,175,000 656,000 3,831,000

Additional entry in parent's books under equity method

Investment in subsidiary 656,000
Investment income 656,000

Investment income 95,000

Investment in susb 95,000
PARENT'S BOOKS WORKING PAPER
20x4 ADDITIONAL ELIMINATING ENTRIES
Elimination of intercompany trans- currrent y
Equipment
Accum dep
Loss on sale
as if there was no sale that occurred

740,000
Cash 740,000 Realize gain/loss on sale of fixed asset (loss o
dep ex
accum dep
185,000
accum dep 185,000 20x5 Elimination of intercompany trans- prior yea
Equipment
Accum dep
Retained earnings-parent/conso
185,000 Noncontrolling interest
accum dep 185,000
Retained earnings-parent/conso
Noncontrolling interest
EQUITY METHOD Parent Subs Conso accum dep
Operating income 3,270,000
Investment income 580,000 Elimination of intercompany trans- currrent y
Net income, books 3,850,000 820,000 4,670,000 Dividend incme
Adjustments-CY EE noncontrolling interest
Elimination of inter co trans dividends paid
a. invt inc - 580,000 - 580,000
b.realized loss - 95,000 - 95,000 Dep ex
amort of excess over book value accum dep
net income, conso 3,270,000 725,000 3,995,000
share of nci - 145,000 - 145,000
shair of ci 3,270,000 580,000 3,850,000

Additional entry in parent's books under equity method

Investment in subsidiary 580,000
 Investment income 580,000

Subsidiary's books 20x5 Parent Subs

Cost 300,000
accum dep - 30,000
book value, dec 31 20x 270,000
depreciation 30,000

20x6 Parent Subs

Cost 300,000
accum dep - 60,000
book value, dec 31 20x 240,000
depreciation 30,000

20x7 Parent Subs

Cost 300,000
accum dep - 90,000
book value, dec 31 20x 210,000
245,000 depreciation 30,000
cash 245,000
20x8 Parent Subs
Cost 245,000
accum dep - 35,000
35,000 book value, dec 31 20x5 210,000
accum dep 35,000 gain on sale 35,000
depreciation 35,000

20x9 Parent Subs

Cost 245,000
accum dep - 70,000
book value, dec 31 20x5 175,000
gain on sale
20x8 20x9 20y0 depreciation - 35,000
35,000 30,000 25,000
5,000 5,000 2,500 --> dep 20x9 Parent Subs
30,000 25,000 22,500 -->gain on sale cash 150,000
realized thru outside sale 22,500 carrying value, june 30 20y0 157,500
gain(loss) - 7,500
20x9 ELIMINATING ENTRIES- current period

loss on sale, subs

 20y0 realized gain on sale thru outside sale
gain on sale, conso
Realization of gain/loss
30,000
dep ex 30,000

SUBSIDIARY BOOKS

17,500
accum dep 17,500

150,000
87,500
oss on sale 7,500
truck 245,000

20y0 ELIMINATING ENTRIES- current period

Realization of gain/loss
2,500
dep ex 2,500

77,500
oss on sale 7,500 close yung sa subs
gain on sale 15,000 conso
truck 55,000
ATING ENTRIES
mpany trans- currrent year
540,000
160,000
380,000
e that occurred

ale of fixed asset (loss on sale/dep ex will decrease NET INCOME)

 95,000
95,000

mpany trans- prior year

540,000
160,000
380,000
ar tapos palitan nominal accoount

95,000
95,000

mpany trans- currrent year

48,000
12,000
60,000

95,000
95,000
ATING ENTRIES

SAME ENTRIES WITH DOWN STREAM

mpany trans- currrent year
540,000
160,000
380,000
e that occurred

ale of fixed asset (loss on sale/dep ex will

95,000
95,000

mpany trans- prior year

540,000
160,000
earnings-parent/conso 304,000
olling interest 76,000

76,000
19,000
95,000

mpany trans- currrent year

48,000
12,000
60,000

95,000
95,000
Conso
300,000
- 30,000
270,000
30,000

Conso
300,000
- 60,000
240,000
30,000

Conso
300,000
- 90,000
210,000
30,000

Conso
300,000
- 120,000
180,000
-
30,000

Conso
300,000
- 35,000
265,000
-
30,000

Conso
150,000
135,000
15,000
gain sa conso

- 7,500 dep, subs - 17,500

22,500 20y0realized thru dep 2,500
15,000 dep, conso - 15,000
 APRIL 1, 20x8 TRIAL BALANCE ADJUSTMENTS FOR
Accounts DR CR 1) Cash
Cash 29,000
Investments (at market value, equal to cost) 88,000
Inventories 5,000 2) Cash
Land 10,000
Building 164,000
Accum dep-building 130,000 3) Cash
Furniture and equipment 54,000
Accum dep-furniture and equip 46,000
Endowment investments 400,000 4) Expenses
Accounts payable 10,000
Participation certificates (100@P1,000 each) 100,000
Unrestricted net assets 12,000 5) Vouchers payable
Temporarily restricted net assets 52,000
Permanently restricted net assets 400,000
750,000 750,000 6) Cash

7) Investments

8) Dep ex

9)

10) Cash

11) contri receivable

ADJUSTMENTS FOR THE YEAR ENDED MARCH 31, 20x9
Cash 20,000 Public support:
Revenues-Membership dues 20,000

Cash 31,000
contri 31,000 Revenue:

Cash 7,000
Revenue- investments and dividends 7,000

Expenses 54,000
Vouchers payable 54,000 Total public support and reven
Expenses
Vouchers payable 55,000
Cash 55,000 Change in net assets
Net assets, beg
Cash 5,000 Net assets, end
Legacies and bequests 5,000

Investments 7,000 1
Net increase in CA of investments 7,000 2
3
Dep ex 12,000 4
Accum dep 12,000 5
6
7
Inventories 1,000 8
9
Cash 35,000 10
Contribution 35,000

contri receivable 100,000

Public support- contribution 100,000
 UnrestictedTemp Perm Total
Public support:
contribuitons 31,000 35,000
legacies and bequests 5,000 100,000
Total public support 36,000 35,000 100,000
Revenue:
Membership dues 20,000
Net increase in CA of invts 7,000
Investment income 7,000
Sales
Total revenues 34,000
Total public support and revenues 70,000 35,000 100,000
Expenses
vouchers 67,000
Change in net assets 3,000 35,000 100,000
Net assets, beg 12,000 52,000 400,000
Net assets, end 15,000 87,000 500,000

correct
total unrestricted support 36,000 36,000
total unrestricted revenue 34,000 34,000
Total unres public support and revenues 70,000 70,000
total unres and res pub sup and rev 205,000 205,000
total exp 67,000 70,000
change in unres net asset 3,000 -
unres net assets at end of year 15,000 12,000
temp res eoy 87,000 87,000
perm res eoy 500,000 500,000 1,000,000
total NA eoy 602,000 599,000 - 40,000

21,060 4,212
10,530 20
211 12,000
21
16,800