Beruflich Dokumente
Kultur Dokumente
Scope
Accounting and working paper eliminations for related party transactions between a parent company and its subsidiaries can be grouped in two broad classes: Does not include inter company profits/losses. Includes inter company profits/losses.
Accounting Techniques
Ensure that consolidated financial statements include only those balances and transactions resulting from the consolidated groups dealings with outsiders. Separate ledger accounts established for all intercompany assets, liabilities, revenues and expenses.
Capital Lease
Sale of Property Acquisition of Property
Rendering of Services
Services may be rendered by a parent company to a subsidiary or vice versa. Both the companies should record the transaction in the same accounting period. Example: Management Fee charged subsidiary by a parent company.
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Intercompany revenue and expense transactions do not include an element of profit or loss for the consolidated entity as expense for one is offset by income for another. Therefore, no income tax effects are associated with these transactions. Note: This holds true even if the parent and the subsidiary companies file separate tax returns.
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Sales
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Depreciable
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Valued at book value of the selling company while preparing consolidated financial statements. Intercompany gain element must be eliminated from the depreciation expense. In case of minority interest, intercompany gain in depreciation should be eliminated to the extent of the parent companys ownership interest. Intercompany gain in later years must reflect that the gain element in the acquiring affiliates annual depreciation represents a realization of a portion of total gain by the selling affiliate.
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