Pod Company, a 100% owned subsidiary of Pea Company, sold land to Pod on March 1,...

Pod Company, a 100% owned subsidiary of Pea Company, sold land to Pod on March 1, 2017, for $65,000. The land originally cost Pod $50,000. Pea still owns the land at the end of 2018.

On a consolidation worksheet, what adjustment would be made for 2017 regarding the land transfer?

On a consolidation worksheet, what adjustment would be made for 2018 regarding the land transfer?

Expert Solution

Whenever there is intercompany transfer/ sale of non current non depreciable asset; elimination entry for the same is required in the year in which asset is first sold/ transferred and thenafter in every year until the asset is sold or useful life of the asset is expired
un the given case inter company transaction of sale of land has occured. Land of $ 50,000 sold at upstream of $ 65,000.
Hence land must have been reported in group accounts before adjustment at $ 65,000 whereas its original cost is only $ 50,000 hence gain of $ 15,000 (i.e. 65000-50000) required to be eliminated by the following journal entry in the year 2017......
Consolidation elimination entry Year- 2017

Gain on sale of land A/c Dr.... $ 15,000

To Land A/c ..............................$ 15,000

Any tax liability (if any ) recognized on gain on sale of land would also be required to eliminate
In the year 2018 and then after same entry would be made except instead of gain on sale of building "retained earning A/c would be debited" as above transaction is effected seperate financial statement in the year 2017
Consolidation elimination entry Year- 2018

Retained earning A/c Dr..... $ 15,000

To Land A/c ..............................$ 15,000

so far adjustment regarding NCI; these would not be affected in the case as there in no NCI (i.e. 100% owned)

ekkarill92 answered 2 years ago

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