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Chapter 22 Intercompany Transactions

Chapter 22 Intercompany Transactions

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Chapter 22 Intercompany Transactions

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  1. Chapter 22Intercompany Transactions

  2. Lecture Topics • The exchange • Receivables and payables • Profits • Long-lived inter-company transactions

  3. Lecture References • Text - Chapter 22 • AASBs - 1024

  4. Key Concepts • Management fees • Inter-company exchange

  5. The Exchange • Offset: • Revenue of supplier • Expense of purchaser Services Dr Management fee (Revenue) x Cr Management fee (Expense) x

  6. The Exchange Goods Dr Sales x Cr Stationery Supplies (expense) x Goods Dr Sales x Cr Purchases (or cost of sales) x

  7. The Exchange Dividends from post-control profits Dr Dividend Revenue x Dr Retained Profits (Interim Div.) x Cr Retained Profits (Proposed Div.) x Cash No elimination required

  8. Receivables and Payables • Loans and ancillary debts Dr Accounts Payable x Cr Accounts Receivable x Dr Interest Accrued (liab.) x Cr Interest Accrued (assets) x

  9. Receivables and Payables • Bills • Held to maturity • Eliminate as for other debt • Discounted • Not eliminated • Discounted without recourse • Eliminate contingency

  10. High Low Elimination Ltd Ltd Sum Dr Cr Cons. Service Fee 9000 9000 9000 - Less: Service Cost 6800 9000 15800 9000 6800 Impact on GP 2200 (9000) (6800) (6800) Profits - Service exchanges

  11. Elimination High Low Sum Dr Cr Cons. Sales 750 790 1540 750 790 Cost of Sales 600 750 1350750600 Gross Profit 150 40 190 190 Profits - Exchange of Goods • Inter-company sale and on-sale to external party

  12. Profits - Exchange of Goods • Inter-company sale and asset retention • Periodic inventory records Dr Closing Inventory (asset) x Cr Cost of Sales (Closing Inventory) x

  13. Profits - Exchange of Goods • Inter-company sale and asset retention • Periodic inventory records Dr Cost of Sales x Cr Inventory x

  14. Example: Low/High Ltd • Low purchased goods for $700 and sold them to High for $875 • High still holds all stock • periodic • perpetual

  15. Elimination High Low Sum Dr Cr Cons. Financial Performance Sales 875 875 875 - Op. Inventory - - - - Purchases 875 700 1575875700 875 700 1575 700 Cl. Inventory (875) - (875)175(700) Cost of sales - 700 700 - Gross Profit - 175 175 - Financial Position Inventory 875 - 875 175 700

  16. Elimination High Low Sum Dr Cr Cons. Financial Performance Sales 875 875 875 - Cost of sales - 700 700 875 - 175 Gross Profit - 175 175 - Financial Position Inventory 875 - 875 175 700

  17. Long-Lived Intercompany Transactions • Inventory at start of period Elimination Sum Dr Cr Cons. Financial Performance SOP Inventory 1700 175 1525 retained profits analysis SOP Retained Profits 1740 200 175 1365

  18. Long-Lived Transactions • Non-current assets • Non-depreciable Dr Profit on land sale x Cr Land x

  19. Long-Lived Transactions • Non-current assets • Depreciable • Relocation of assets • Profit/loss on transfer • Reassessment of value

  20. Long-Lived Transactions • Debentures • Treated as per other debt • Eliminate inter-company interest • Eliminate receivable/payable • Adjust for discount

  21. Long-Lived Transactions • Consolidation difference Goodwill Dr Amortisation Expense x Dr Retained Profits (SOP) x Cr Consolidation Goodwill x

  22. Long-Lived Transactions • Consolidation difference Discount Dr Consolidation Discount x Cr Various non-monetary assets x Dr Asset Contra Accounts x Dr Asset usage expenses x Cr Retained Profits (SOP) x

  23. Long-Lived Transactions • Consolidation difference • Disposal of non-monetary assets complete • All discount recognised in profit Dr Consolidation Discount x Cr Retained Profits (SOP) x

  24. Where to get more information • Other courses • List books, articles, electronic sources