1. Advanced Financial Accounting: Chapter 4
Group Reporting III:
Consolidation under IAS 27
Tan & Lee Chapter 4
© 2009

2. Learning Objectives
Understand the principles underlying elimination of intragroup balances and transactions;
Understand the rationale for consolidation adjustments to opening retained earnings (RE);
Appreciate the significance of upstream vs downstream sales & the impact on non-controlling interests (NCI); and
Pass the appropriate consolidation adjustments to eliminate unrealized profit or loss from transfers of fixed assets and inventory.
Tan & Lee Chapter 4
© 2009

3. Content 1. Elimination of intragroup transactions and balances
Elimination of realized intragroup transactions
Elimination of intragroup balances
Adjustment of unrealized profit or loss arising from intercompany transfers
Impact on non-controlling interests arising from adjustments of unrealized profit or loss
Special considerations for intercompany transfers of fixed assets
Special accounting considerations when intragroup transfers are made at a loss
Tan & Lee Chapter 4
© 2009

4. Elimination of Intragroup Transactions and Balances
Operational and financial interdependencies within the group entities
Lead to intragroup transactions and balances
Intragroup transactions include:
Buying or selling of inventory;
Transferring of long lived assets;
Rendering or procuring of services; and
Providing financing among the companies within the group
Transfer of assets within the group usually includes a profit margin:
Risks and rewards of ownership of assets remain in the group
Profit is unrealized until the asset is sold to a 3rd party
The time lag between purchase and resale of assets results in overstatement/understatement of group profit/loss and assets
Tan & Lee Chapter 4
© 2009

5. Elimination of Intragroup Transactions and Balances
Intragroup balances arise from unsettled balances of intragroup transactions
E.g. Loan receivable/ payable to or from group companies , Dividend receivable/payable, Accounts receivable/payable to or from group companies
From an economic perspective, an entity is not able to transact with itself
All intra-group transactions and balances are to be eliminated during consolidation
Elimination adjustments are made in relation to the original entries passed in the separate financial statements
Tan & Lee Chapter 4
© 2009

6. Principles Governing Elimination
Outstanding balances due to or from companies within a group are eliminated
Transactions in the income statement between the group companies are eliminated
Unrealized profit or loss included in assets are eliminated in full (both parent’s & NCI’s share)
Tax effects on unrealized profit or loss included in assets should be adjusted according to IAS 12 Income Taxes
Balances with associates (“significant influence”) are not eliminated
Associates are not part of the group
Tan & Lee Chapter 4
© 2009

7. Content Elimination of intragroup transactions and balances
Elimination of realized intragroup transactions
Elimination of intragroup balances
Adjustment of unrealized profit or loss arising from intercompany transfers
Impact on non-controlling interests arising from adjustments of unrealized profit or loss
Special considerations for intercompany transfers of fixed assets
Special accounting considerations when intragroup transfers are made at a loss
Elimination of realized intragroup transactions
Tan & Lee Chapter 4
© 2009

8. Elimination of Realized Intragroup Transactions
“Offsetting” effect on the group’s net profit from realized transactions
Profit recorded by the selling company offsets the expense recorded by the buying company
However, elimination is still required to avoid overstatement of individual line items
Examples:
1. Transactions relating to interest:
No time lag in the recognizing of interest by borrower and lender
Interest income exactly offsets the interest expense
Elimination entry: Dr
Interest Income Cr
Interest Expense
Tan & Lee Chapter 4
© 2009

9. Elimination of Realized Intragroup Transactions
2. Transactions relating to services provided
Provision and consumption of services are simultaneous
Transactions are recorded in the same period by both parties
Elimination entry:
3. Transfers of inventories that are resold to 3rd party in the same period
Profit recorded by selling company offsets the higher cost of sale recorded by buying company Dr
Service Income Cr
Service Expense Dr
Sales Cr
Cost of Sales
Tan & Lee Chapter 4
© 2009

10. Content Elimination of intragroup transactions and balances
Elimination of realized intragroup transactions
Elimination of intragroup balances
Adjustment of unrealized profit or loss arising from intercompany transfers
Impact on non-controlling interests arising from adjustments of unrealized profit or loss
Special considerations for intercompany transfers of fixed assets
Special accounting considerations when intragroup transfers are made at a loss
Elimination of intragroup balances
Tan & Lee Chapter 4
© 2009

11. Prior to Elimination
Reconciliation is carried out when the balances recorded in both companies differ
Usually, reconciling items are due to:
Problems
Reconciliation adjustments
In-transit items (recorded by only one company)
Either adjusted out or recognized in a manner consistent with the other party’s treatment
Errors and omissions
Correct the error or pass entry to record the omitted entry
Dispute on the transaction
Either recognized by the disputing party or adjusted out by the party that recorded the items in books
Tan & Lee Chapter 4
© 2009

12. Reconciliation of intercompany balances
Reconciliation of balances between Sub A and Sub B $
Amount owing by B in A’s book as at 31 December 20X5
40,000
Less: Items in A’s book but not in B’s books:
Disputed (note 1)
(1,500)
Goods received on 29 December 20X5 (note 2)
(3,200)
Repair for goods not under warranty (note 3)
(300)
Less: payment made in December 20X5 by B not recorded by A (note 4)
(17,000)
Amount owing to A in B’s book as at 31 December 20X5
18,000
Tan & Lee Chapter 4
© 2009

13. Reconciliation
Note 1: Either Sub A had to reverse the sale or Sub B had to accrue for the invoice Note 2: Since goods were received before the year end, Sub B had to record the inventory Note 3: Since repairs were not covered under warranty, Sub B had to record the repair costs Note 4: Follow –up action is necessary to ascertain the reason for the non-clearance. If the cheque is lost, Sub B is required to reverse the payment entry Dr
Inventory
3,200 Cr
Payable to A Dr
Repair costs
300 Cr
Payable to A Dr
Bank
17,000 Cr
Payable to A
Tan & Lee Chapter 4
© 2009

14. Content Elimination of intragroup transactions and balances
Elimination of realized intragroup transactions
Elimination of intragroup balances
Adjustment of unrealized profit or loss arising from intercompany transfers
Impact on non-controlling interests arising from adjustments of unrealized profit or loss
Special considerations for intercompany transfers of fixed assets
Special accounting considerations when intragroup transfers are made at a loss
Adjustment of unrealized profit or loss arising from intercompany
transfers
Tan & Lee Chapter 4
© 2009

15. Intragroup Transfers of Inventory and Fixed Assets
Unrealized profit and loss in asset (arising from intragroup transaction) should be eliminated in full
If the transferred asset is an inventory:
It should be carried at original cost and not the transferred price
Adjustments are made to:
Eliminate the profit element
Recognize profit only when the inventory is sold to 3rd party
If the transferred asset is a fixed asset:
The asset should be carried at original cost less accumulated depreciation
Subsequent depreciation is based on original cost and not the transferred price
Tan & Lee Chapter 4
© 2009

16. Adjustment to Opening Retained Earnings (RE)
When a transaction is recognized by a legal entity in one period and by the economic entity in another period
Consolidation adjustments are passed through opening RE
Consolidated opening RE should be the same as the consolidated closing RE of the previous period
The summation of the opening RE of the legal entities in the group will not be equal to the consolidated Opening RE
Consolidated adjustments that have a “one-sided effect” on RE (i.e. elimination adjustments are not fully offsetting) must be re-enacted to opening RE of the next period
E.g. Unrealized profit from intragroup balances in the previous year are adjusted against opening RE in the subsequent year
Tan & Lee Chapter 4
© 2009

17. Adjustments to Eliminate Unrealized Profit
Assuming no NCI effect
In the current period: Dr
Sales Cr
Cost of sales
Inventory
In the following period (if unsold): Dr
Opening RE Cr
Inventory
Remove unrealized profit in inventory
Inter-company sales is reversed
Eliminate realized cost of sales
Reverse unrealized cost of sales
In the following period (if sold): Dr
Opening RE Cr
Cost of sales
Adjust cost of sales from transfer price to original cost
Unsold % x Unrealized profit
Tan & Lee Chapter 4
© 2009 17

18. Tax Effects on Adjustments to Eliminate Unrealized Profit (Loss)
Consolidated tax expense must reflect the tax effects of the consolidated profit before tax (assuming no NCI)
When unrealized profit is eliminated:
Profit is taxable for the legal entity but not the economic entity
A deferred tax asset arises (i.e. in the form of a prepaid tax)
Consolidation adjustment:
The tax expense is recognized when the asset is sold to 3rd party
In the current period: Dr
Deferred tax asset Cr
Tax expense
In the following period (if unsold): Dr
Deferred tax asset Cr
Opening RE
In the following period (if sold): Dr
Opening RE Cr
Tax expense
Tan & Lee Chapter 4
© 2009

19. Illustration 1: Upstream Sale
S is a wholly owned subsidiary of P
On 1 April 20X1, S sold inventory costing $7,000 to its P for $10,000
On 5 Jan 20X2, P sold the inventory to external party for $15,000
Tax rate was 20% . Year-end is 31 Dec 20X1
Q1 What are the consolidation journal entries as at YE 31 Dec 20X1 ? Dr
Sales (S’s I/S)
10,000 Cr
Cost of sales (S’s I/S)
7,000
Inventory (P’s B/S)
3,000
This entry is to reduce current year profits and overstatement of inventory for the unrealized profit of $3,000 Dr
Deferred tax asset (Group B/s)
600 (3,000 * 20%) Cr
Tax expense (S’s I/S)
600
Tax effects of profit adjustment
Tan & Lee Chapter 4
© 2009

20. Illustration 1: Upstream Sale
Q2: What are the consolidation entries as at 31 Dec 20X2? Dr
Opening RE (S’s B/S)
3,000 Cr
Cost of sales (P’s B/S)
This entry is to reduce previous year profit through opening RE and recognize profit in the current year when the inventory is sold to a 3rd party Dr
Tax expense (group’s I/S)
600 Cr
Opening RE
Since the profit is realized in this year, the tax expense should be recognized in the group’s income statement in the current year Or Dr
Deferred tax asset
600 Cr
Opening RE
Tax expense
Tan & Lee Chapter 4
© 2009

21. Content Elimination of intragroup transactions and balances
Elimination of realized intragroup transactions
Elimination of intragroup balances
Adjustment of unrealized profit or loss arising from intercompany transfers
Impact on non-controlling interests arising from adjustments of unrealized profit or loss
Special considerations for intercompany transfers of fixed assets
Special accounting considerations when intragroup transfers are made at a loss
5. Impact on non-controlling interests arising from adjustments of unrealized profit or loss
Tan & Lee Chapter 4
© 2009

22. Downstream Sale Unrealized profit resides in Parent’s book Parent
Subsidiary
90 % owned
Sales were made from parent to subsidiary
Unrealized profit resides in Parent’s book
In downstream sale, NCI’s share of profit of the subsidiary is not affected because the adjustment affects the parent’s profit not the subsidiary
Tan & Lee Chapter 4
© 2009

23. Upstream Sale Parent Sales were made from subsidiary to parent
90 % owned
Sales were made from subsidiary to parent
Unrealized profit resides in Subsidiary’s book
In upstream sale, the unrealized profit resides in the subsidiary. Thus, NCI’s share of the unrealized profit or loss needs to be adjusted from the carrying amount of the asset (IAS 27 Para 21)
Tan & Lee Chapter 4
© 2009

24. Illustration 2: Upstream and Downstream Sales
P invested in 70% of shares of S
Intercompany transfers of inventory are as follows:
Tax rate: 20%
Net profit after tax of S: $800,000 (31 Dec 20X3)
$900,000 (31 Dec 20X4)
20X3
20X4
Sale of inventory from P to S
Original cost of inventory
Gross profit
Percentage unsold to 3rd party at year end
$60,000
$(50,000)
$10,000
10% 4%
Sale of inventory from S to P
$200,000
$(170,000)
$30,000
30% 0%
Tan & Lee Chapter 4
© 2009

25. Illustration 2: Upstream and Downstream Sales
31 Dec 20X3
Eliminate intercompany sales and adjust unrealized profit in inventory Dr
Sales
60,000 Cr
Cost of sales
59,000
Inventory
1,000
(Elimination of intercompany sales and adjustment of unrealized profit from downstream sale)
Unrealized profit x percentage unsold Dr
Sales
200,000 Cr
Cost of sales
191,000
Inventory
9,000
(Elimination of intercompany sales and adjustment of unrealized profit from upstream sale)
Tan & Lee Chapter 4
© 2009

26. Illustration 2: Upstream and Downstream Sales
2) Adjust the tax effects on unrealized profit Dr
Deferred tax asset
200 Cr
Tax expense
(Elimination of intercompany sales and adjustment of unrealized profit from downstream sale)
Unrealized profit from unsold inventory x 20% Dr
Deferred tax asset
1,800 Cr
Tax expense
(Adjustment for tax effects on unrealized profit in inventory from upstream sale)
Tan & Lee Chapter 4
© 2009

27. Illustration 2: Upstream and Downstream Sales
3) Allocate share of current profit and RE to NCI Dr
Income to NCI
237,840 Cr
NCI
Net profit after tax of S *
800,000
Less: Unrealized profit from upstream sale
(9,000)
Add: Tax on unrealized profit
1,800
Adjusted profit
792,800
NCI’s share (30%)
* Note: No adjustment is required for the unrealized profit from downstream sale as profit resides in parent income
Tan & Lee Chapter 4
© 2009

28. Illustration 2: Upstream and Downstream Sales
31 Dec 20X4 1) Adjust opening RE and adjust unrealized profit in inventory Dr
Opening RE
1,000 Cr
Cost of sales
600
Inventory
400
(Adjustment of unrealized profit in RE from downstream sale in 31 Dec 20X3) Dr
Opening RE
6,300
NCI
2,700 Cr
Cost of sales
9,000
(Adjustment of unrealized profit in RE from upstream sale in 31 Dec 20X3)
Need to adjust NCI’s share of unrealized profit from upstream sale
Tan & Lee Chapter 4
© 2009

29. Illustration 2: Upstream and Downstream Sales
2) Adjust the tax effect Dr
Tax expense
120
Deferred tax asset 80 Cr
Opening RE
200
(Adjustment for tax effects on unrealized profit from downstream sale in RE) Dr
Tax expense
1,800 Cr
Opening RE
1,260
NCI
540
(Adjustment for tax effects on unrealized profit in inventory from upstream sale)
Tan & Lee Chapter 4
© 2009

30. Illustration 2: Upstream and Downstream Sales
3) Allocate share of current profit and RE to NCI Dr
Income to NCI
272,160 Cr
NCI
Net profit after tax of S *
900,000
Add: Unrealized profit from upstream sale
9,000
Less: Tax on unrealized profit
(1,800)
Adjusted profit
907,200
NCI share (30%)
* Note: Adjustments to current year profit:
1) Realized profit & tax from prior years is added back
2) Unrealized profit & tax from unsold inventory in current year is
deducted (none in this year)
Tan & Lee Chapter 4
© 2009

31. Content Elimination of intragroup transactions and balances
Elimination of realized intragroup transactions
Elimination of intragroup balances
Adjustment of unrealized profit or loss arising from intercompany transfers
Impact on non-controlling interests arising from adjustments of unrealized profit or loss
Special considerations for intercompany transfers of fixed assets
Special accounting considerations when intragroup transfers are made at a loss
Special considerations for intercompany transfers of fixed assets
Tan & Lee Chapter 4
© 2009

32. Transfers of Fixed Assets
When fixed assets (FA) are transferred at a marked-up price
The unrealized profit must be eliminated from the carrying amount of FA
It is as though the transfer did not take place from the group’s perspective
Acc. Dep.
NBV
Original cost
Before Transfer
After Transfer
Transfer price
Mark up
$40,000 +
Profit on sale
Tan & Lee Chapter 4
© 2009

33. Adjustments of Transfers of Fixed Assets
Restate the FA carrying amount to the NBV at the point of transfer
Profit on sale of FA is adjusted out of:
Consolidated income statement if sale occurred in the same period
Opening RE if sale occurred in the previous period
3. Subsequent depreciation is based on original cost of asset & estimated useful life (including revision of estimate)
The difference between the old and new depreciation is adjusted to:
Consolidated income statement for current year
Opening RE for prior year accumulated depreciation
Tan & Lee Chapter 4
© 2009

34. Adjustments of Transfers of Fixed Assets
The profit or loss on transfer of FA is realized through the higher or lower depreciation charge subsequently
Tax effect must be adjusted on the unrealized profit and subsequent corrections of depreciation
Tan & Lee Chapter 4
© 2009

35. Impact on NCI When an Unrealized Profit Arises from an Intragroup Transfer of FA
Downstream sales:
No impact on NCI
Upstream sales:
NCI is adjusted for:
Unrealized profit on sale of FA
Correction of over/under-depreciation
Tax effect on unrealized profit
Tax effect on correction of over/under-depreciation
Tan & Lee Chapter 4
© 2009

36. Illustration 3: Downstream Transfer of Fixed Assets
1 Jan 20X2: P sold equipment to S for $360,000
The original cost of the equipment was $400,000
The remaining useful life was 10 years from the original purchase date
The remaining useful life is 8 years from the date of transfer
Assume a tax rate of 20%
Status Quo
With sale
Amount to be restored/adjusted
Cost of asset
Acc. Dep
Current Dep
Profit on sale
$400,000
$120,000
40,000 -
$360,000
$45,000
45,000
$40,000
$75,000
5,000
Tan & Lee Chapter 4
© 2009

37. Illustration 3: Downstream Transfer of Fixed Assets
31 Dec 20X2
CJE 1: Adjustment of unrealized profit Dr
Equipment (S)
40,000
Profit on Sale (P) Cr
Accumulated depreciation (S)
80,000
Reversal of these entries:
In P’s Books Dr
Cash
360,000
Acc. dep
80,000 Cr
Equipment
400,000
Profit on sale
40,000
In S’s Books Dr
Equipment
360,000 Cr
Cash
Dep
45,000
Acc. Dep
Tan & Lee Chapter 4
© 2009

38. Illustration 3: Downstream Transfer of Fixed Assets
CJE 2: Reverse tax on profit on sale Dr
Deferred tax asset (group’s BS)
8,000 Cr
Tax expense (P)
$40,000
$20,000
$60,000
Acc. Dep.
Dep exp: $45,000
Depreciation
Transfer
$360,000
NBV: $315,000
8 yrs
Excess5K
Depreciation
Dep Exp: $40,000
$320,000
No Transfer
8 yrs
NBV: $280,000
Tan & Lee Chapter 4
© 2009

39. Illustration 3: Downstream Transfer of Fixed Assets
CJE 3: Correct the over-depreciation on unrealized profit included in equipment Dr
Accumulated depreciation (S)
5,000 Cr
Depreciation (S)
Old depreciation
40,000
New depreciation
45,000
Over-depreciation
CJE 4: Increase in tax arising from correction of over-depreciation Dr
Tax expense (S)
1,000 Cr
Deferred tax asset
(group’s BS)
Tan & Lee Chapter 4
© 2009

40. Illustration 3: Downstream Transfer of Fixed Assets
When the equipment is fully depreciated:
CJE 5: Reinstate to original cost, accumulated depreciation and reverse profit Dr
Equipment (S)
40,000
Opening RE (P) Cr
Accumulated depreciation (S)
80,000
CJE 6 : Correction of past excess depreciation Dr
Accumulated depreciation (S)
40,000 Cr
Opening RE (S)
Tan & Lee Chapter 4
© 2009

41. Illustration 3: Downstream Transfer of Fixed Assets
CJE 7: Tax effects on unrealized profit on sale of fixed assets Dr
Deferred tax asset
8,000 Cr
Opening RE (P)
CJE 8: Tax effects on unrealized profit on sale of fixed assets Dr
Opening RE (S)
8,000 Cr
Deferred tax asset
Tan & Lee Chapter 4
© 2009

42. Illustration 4: Upstream Transfer of Fixed Assets
Assume illustration 3, except that S transfers to P
1 Jan 20X2 S sold equipment to P for $360,000
The original cost of equipment was $400,000
The remaining useful life is 8 years from date of transfer
Net profit after tax of S for YE 31 Dec 20X2 : 500,000
YE 31 Dec 20X3 : 800,000
Assume a tax rate of 20%
Profit on sale
Acc Dep. = $80,000
40,000
Original cost
$400,000
Transfer price
$360,000
Net book value = $320,000
Before Transfer
After Transfer
Tan & Lee Chapter 4
© 2009

43. Illustration 4: Upstream Transfer of Fixed Assets
31 Dec 20X2
CJE 1: Adjustment of unrealized profit Dr
Equipment (S)
40,000
Profit on Sale (P) Cr
Accumulated depreciation (S)
80,000
CJE 2: Reverse of tax on profit on sale Dr
Deferred tax asset
(group’s BS)
8,000 Cr
Tax expense (S)
Tan & Lee Chapter 4
© 2009

44. Illustration 4: Upstream Transfer of Fixed Assets
CJE 3: Correct the over-depreciation on unrealized profit included in equipment Dr
Accumulated depreciation (P)
5,000 Cr
Depreciation (P)
Old depreciation
40,000
New depreciation
45,000
Over-depreciation
CJE 4: Increase in tax arising from correction of over-depreciation Dr
Tax expense (P)
1,000 Cr
Deferred tax asset
(group’s BS)
Tan & Lee Chapter 4
© 2009

45. Illustration 4: Upstream Transfer of Fixed Assets
CJE 5: Allocation of current year profit Dr
Income to NCI
47,200 Cr
NCI
Net profit after tax of S
500,000
Less: Unrealized profit on sale (after-tax)
(32,000)
Add: Over-depreciation (after-tax)
4,000
Adjusted net profit
472,000
NCI’s share (10%)
* Note: Upstream sale of FA will affect NCI’s share of profit as unrealized profit resides in S
Tan & Lee Chapter 4
© 2009

46. Illustration 4: Upstream Transfer of Fixed Assets
31 Dec 20X3
CJE 1: Adjustment of unrealized profit in prior year Dr
Equipment (P)
40,000
Opening RE (S)
36,000
NCI
4,000 Cr
Accumulated depreciation (P)
80,000
CJE 2: Reversal of tax on profit on sale in prior year Dr
Deferred tax asset (group’s BS)
8,000 Cr
Opening RE (S)
7,200
NCI
800
Tan & Lee Chapter 4
© 2009

47. Illustration 4: Upstream Transfer of Fixed Assets
CJE 3: Correct the over-depreciation for prior and current year Dr
Accumulated depreciation (P)
10,000 Cr
Depreciation (P)
5,000
Opening RE (P)
4,500
NCI
500
CJE 4: Increase in tax arising from correction of over-depreciation in prior and current year Dr
Tax expense (P)
1,000 Cr
Opening RE (P)
900
NCI
100
Deferred tax asset (group’s BS)
2,000
Tan & Lee Chapter 4
© 2009

48. Illustration 4: Upstream Transfer of Fixed Assets
CJE 5: Allocation of current year profit to NCI Dr
Income to NCI
80,400 Cr
NCI
Net profit after tax of S
800,000
Add: Over-depreciation (after-tax)
4,000
Adjusted net profit
804,000
NCI’s share (10%)
Tan & Lee Chapter 4
© 2009

49. Content Elimination of intragroup transactions and balances
Elimination of realized intragroup transactions
Elimination of intragroup balances
Adjustment of unrealized profit or loss arising from intercompany transfers
Impact on non-controlling interests arising from adjustments of unrealized profit or loss
Special considerations for intercompany transfers of fixed assets
Special accounting considerations when intragroup transfers are made at a loss
Special accounting considerations when intragroup transfers are made at a loss
Tan & Lee Chapter 4
© 2009

50. Transfers of Assets at a Loss
Need to reassess whether the loss is indicative of impairment loss
If it is indicative of impairment loss:
Unrealized loss is not adjusted out of the carrying amount of asset
Only reverse the sales and cost of sale (to the extent of the sales) for inventory
Only reverse the excess over cost and accumulated depreciation (to the extent of the sales) for FA
If it is not indicative of impairment loss:
Same treatment as with unrealized profit
Unrealized loss is adjusted out of the carrying amount of asset
Realized only when the inventory is sold to 3rd party or under/over- depreciation of FA is corrected
Tan & Lee Chapter 4
© 2009

51. Illustration 5: Unrealized Loss Arising From Intragroup Transfers
Parent transferred inventory to subsidiary during the year ended 31 Dec 20X6
The loss on transfer indicated an impairment loss on the inventory
What is the consolidation journal entry?
Transfer price
$60,000
Original Cost
$80,000
Gross loss
($20,000) Dr
Sales
60,000 Cr
Cost of Sales
Eliminate the transfer of Inventory – no adjustment is made to remove the unrealized loss
Tan & Lee Chapter 4
© 2009

52. Illustration 5: Unrealized Loss Arising From Intragroup Transfers
Parent transferred fixed asset to subsidiary during the year ended 31 Dec 20X6
Transfer price $120,000
Original Cost $200,000
Acc. Dep ($ 50,000)
NBV $150,000
Loss on transfer $ (30,000)
The loss on transfer indicated an impairment loss on the fixed asset
What is the consolidation journal entry? Dr
Fixed assets
80,000 Cr
Accumulated depreciation
Eliminate the transfer of fixed asset – loss of $30,000 is not eliminated
Subsequent depreciation will take into account any revision in useful life of the impairment in value
Tan & Lee Chapter 4
© 2009

53. Conclusions
Only transactions with 3rd parties should be shown in consolidated financial statements
Intra-group transactions and balances must be eliminated after reconciliation of balances
Unrealized profit or loss in inventory or fixed assets must be adjusted
Upstream transfers will impact NCI
Tax effects on profit adjustments must be made
Special considerations for transfers at a loss