Parent Sale to Sub & Sub Resold

Advanced financial accounting. In this presentation we’re going to discuss an intercompany transaction where a parent makes a sale to a subsidiary and then the subsidiary resells it. In other words, we have this intercompany transaction, we want to think about how that is constructed. And then how we can do the reversing entry for it or a consolidation entry in the case of a consolidation of a parent and subsidiary in a consolidated financial statements, get ready to account with advanced financial accounting. So within a situation where we have a sale from P to s, and then S sells it to an outsider remember that as it goes to the outsider, that’s going to be the legitimate type of so that’s the arm’s length transaction, the sale from PETA is not so and therefore we kind of have to eliminate that. Now if it’s been sold to an outsider, then we have a situation where the inventory is still gone. There has been a sale being taken place. And so we so that’s good, but we still have to do the reversal of part of that intercompany transfer and it’s gonna boil down At the end of the day, basically debiting, the revenue account reversing revenue, and reversing the cost of goods sold. So this is the boiled down version. Now if you think about it, you might say what happy because if p sales to s, then you’re going to like debit cash credit, you know, you’re going to credit the sales, and then you debit cost of goods sold, and credit inventory and then asked is going to be recorded cash, and then they’re gonna be recording, then the other side go into inventory, and then right, there’s more, and then they made the sale to the outsider. So how do we boil this down? How does the intercompany boil down to just this right? We kind of kind of have an idea of that in our mind.

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Eliminating Intercompany Transactions

Advanced financial accounting. In this presentation we will discuss eliminating intercompany transactions, the objective will be to have an overview of the intercompany transactions, the types of intercompany transactions and the basic elimination entry for those intercompany transactions get ready to account with advanced financial accounting intercompany transactions, we’re going to start off by listing the intercompany transactions as we list them. Remember, our objective is in essence to remove the intercompany transactions.

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Intercompany Transactions

Advanced financial accounting. In this presentation we’re going to discuss intercompany transactions. So typically we have a situation where where we have a parent subsidiary relationship or thinking about a consolidation type of process within it. And then we have those intercompany transactions between the companies that need to be consolidated between parent and subsidiary, get ready to account with advanced financial accounting intercompany transactions, the intercompany transactions we’ll be focusing in on here and working some practice problems in on will include the intercompany receivables and payables need to be eliminated for consolidated financial statements.

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Consolidation With Difference Simple Example

Advanced financial accounting. In this presentation we’re going to talk about the consolidation process with a differential we’re going to look at the component parts with a simple example a simple calculation, you’re ready to account with advanced financial accounting, consolidation with differential example. So here’s going to be the basic scenario for many of the practice problems we will be looking with. We have P and S, there’s going to be a parent subsidiary relationship in which we will be making consolidated financial statements. How did this situation take place what constituted this situation, we’re going to say that in this example, P is purchasing the stocks of S. So notice they’re purchasing the stocks of s and therefore negotiating the stock price, which we’re going to say is $1,000 here. Now to simplify this example, you first want to think about this as p purchasing 100% of the stock of s for $1,000. And then once they have control, anything over 51% would then be controlled.

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Consolidation Calculations Less Then Wholly Owned Subsidiary

Advanced financial accounting. In this presentation we’re going to talk about consolidation calculations for less than wholly owned subsidiaries. So we have a parent subsidiary relationship, we’re going to be looking at the consolidation process to put the financial statements of the parents and the subsidiaries as if they are one entity, but we don’t have a wholly owned subsidiary. In other words, the parent does not own 100% of the subsidiary. How do we do the consolidation? in bad case, consolidation calculations less than wholly owned subsidiaries, that entities entire income and value must be reported per the current standards? So in other words, once again, we might think, well, on the income statement, maybe we would just report the part of the subsidiary that belongs to or is controlled by the parent, but that’s not typically the case. That’s not the case under generally accepted accounting principles.

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Direct & Indirect Control

 

Advanced financial accounting. In this presentation we’re going to talk about the concepts of direct and indirect control. If you’re ready to account with advanced financial accounting, we want to consider these concepts within the context of financial statements and consolidation. So you’ll recall that when we have consolidated financial statements, the idea is to put two financial statements together when one company has basically control over another company that being defined typically by having more than 51% interest because if you have more than 51%, then you have basically a voting share for you to vote on anything, then of course, you would win the vote at that point in time. So let’s consider then direct control and indirect control direct control when one company has a majority of another company’s stock common stock. So that would be a situation where you got a and b, one company has a majority interest over 51% control is pretty easy to see at that point. When you start to get into indirect control. This can get more complicated things can get more confusing here. So indirect control, one company’s common stock is owned by one or more other companies that are under common control. So this can get a lot more detailed structure in terms of what is going to constitute control. So for example, if we have direct control, then you have just simply a parent subsidiary type of relationship. And, you know, the parent has more than 51% of the subsidiary, interest common stock. So and that could happen if we have to, we could still have a little bit more complexity here, where we have two subsidiaries, right. But they’re both going to be consolidated in this case, because there’s 75% over 51% direct control is parent over as one direct control over as to here because it’s over the 51%. So both of these cases would be direct control.

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Consolidation for Non Wholly Owned Subsidiary

Advanced financial accounting. In this presentation we’re going to talk about a consolidation for a non wholly owned subsidiary. So in other words, we have a parent subsidiary relationship, but the parent doesn’t own 100% of the outstanding common stock of the subsidiary but something other than 100%. In other words, over 51% controlling interest less than 100% get ready to account with advanced financial accounting. Non controlling interest often will be represented NCI non controlling interest. So notice if we have a parent subsidiary relationship we’re talking about there is some controlling interest, the controlling interest is the interest that’s going to be over 51%. However, if we don’t have 100% ownership, then we have the amount that’s not in control and that of course is going to be the non controlling interest. So non controlling interest. NCI controlling interest is needed for consolidation. Obviously, if we’re going to consolidate this thing, that means typically that A parent has some controlling interest over 51% a 100% is not needed. So 100% of ownership, in other words, by one parent to the other is not necessary for a consolidation to take place control is necessary, which is typically over 51% less than 100% ownership will result in a non controlling shareholder, those other than the parent.

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