ii. Report a Violation 10. I couldn't find anything in the codification. I would also make a note to that effect. 2. From a consolidated perspective, the extra expense gradually offsets the unrealized gain within this equity account. Asset original cost = 160. Baker, as the buyer, enters the equipment into its records at the $90,000 transfer price. Because of the lack of official guidance, no easy answer exists as to the assignment of any income effects created within the consolidation process. I need to transfer the assets and liabilities from the old company to the new companies. Content Guidelines 2. Equipment, patents, franchises, buildings, and other long-lived assets can be involved. At the moment the assets have been transferred at a value higher than the net book value and physical cash paid between the companies. Transferring Fixed Assets to Related Companies (Section 24 Election) When a company takes over or buys fixed assets from a related company where there are 50% or more common shareholders, both companies may "elect" to transfer the assets under Section 24 of the Income Tax Act . Equipment, patents, franchises, buildings, and other long-lived assets can be involved. Then the transferee records the asset at fair value with an intercompany gain what would the intercompany gain be eliminated against? Accounting, Company, Financial Statements, Transactions, Transfer of Depreciable Assets. ... the companies are connected (having common control). In applying the equity method, the parent adjusts its book income for both the original transfer gain and periodic depreciation expense adjustments. The parent rather than the subsidiary made the sale. The depreciation systematically eliminates the unrealized gain not only from the asset account but also from Retained Earnings. To derive worksheet entries at any future point, the balances in the accounts of the individual companies must be ascertained and compared to the figures appropriate for the business combination. If this equipment is ever resold to an outside party, the remaining portion of the gain is considered earned. Because the transfer’s effects continue to exist in the separate financial records, the various accounts must be corrected in each succeeding consolidation. Both the unrealized gain on the transfer and the excess depreciation expense subsequently recognized are assigned to that party. As an example, to adjust the individual figures to the consolidated totals derived earlier, the 2010 worksheet must include the following entries: Although adjustments of the asset and depreciation expense remain constant, the change in beginning Retained Earnings and Accumulated Depreciation varies with each succeeding consolidation. (credit) 40. Thus, in downstream intercompany transfers when the equity method is used, from a consolidated view, the book value of the parent’s Retained Earnings balance has been already reduced for the gain. As discussed subsequently, however, in the years following the intercompany transfer, a slight modification must be made to the consolidation entry *TA when the equity method is applied and the transfer is downstream. For clarification purposes, two separate consolidation entries for 2009 follow. NBV = 0. If the net book value in the transferor company is a reasonable approximation to the market value, so be it - otherwise, you are likely to have a profit on SOFA in the accounts and a balancing charge in the capital allowances. Copyright 9. WFH wears thin, but is the office working? If I'm transferring an asset from one related company to another (no cash exchanged), what would the journal entry look like on both books with the following information? This is the entry I got for the transferee: This is the partial entry I got for the transferor: ? Does this look right? Yes - under the FRSSE, of course, the nature of the transaction and the amount must be disclosed under a related party note. A slight modification to consolidation entry *TA is required when the intercompany depreciable asset transfer is downstream and the parent uses the equity method. Click here to register. Return the January 1, 2009, book value to the appropriate $60,000 figure by recognizing accumulated depreciation of $40,000.