Question

In: Accounting

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?

Solutions

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)

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