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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Usefulness of Consolidated Financial Statements

Advanced financial accounting. In this presentation we’re going to take a look at the usefulness of consolidated financial statements. In other words, consolidated financial statements taking two or more companies where there’s a parent subsidiary relationship, putting them together representing financial statements as if those entities were one entity. What are the pros and cons of using consolidated financial statements? Get ready to account with advanced financial accounting idea of consolidated financial statements? In other words, why did we come up with the consolidated financial statements? So remember, we’re talking about a situation where there’s a parent subsidiary relationship, there’s a controlling interest, we have one company that has a controlling interest in over 51 interest in the other company. And then we’ve come up with this concept of showing the Consolidated Financial Statements showing the entity the parent and the subsidiary entities of which there’s a controlling interest as if they were one entity. Why do that? So when company creates or gets controlled Another company, that’s going to be the scenario we have. So we have a parent subsidiary relationship due to that fact due to one company having control than another company. You can think of that, of course in a stock situation owning for more than 51%. The result is a parent subsidiary relationship. So if we just have the two entities, it would look something like this.

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Subsidiary Sells Additional Shares to Parent

Advanced financial accounting PowerPoint presentation in this presentation will discuss a consolidation process where we have a parent subsidiary relationship and the subsidiary sells additional shares to the parent. So we have a situation where we have the subsidiary selling additional shares to the parent, what’s going to be the effect on the Consolidated Financial Statements get ready to account with advanced financial accounting. We’re talking about a situation here where the subsidiary is going to sell additional shares to the parent and the price is going to be equal to the book value of the existing shares. In that case, it’s going to increase the parents ownership percent, because the parent now has more stocks and no one else got more stocks. Therefore, their percent ownership is increasing. The increase in the parents investment accounts will equal the increase in the stockholders equity of the subsidiary the book value of the non controlling interest is not changed and the normal consolidation entries will be made based on the parents and new ownership percent. So obviously when we do The consolidation entries, we’re going to be basing them on the new ownership percent, that’s going to be the more simple kind of situation where we have the price equal to the book value. What if there’s a sale of additional shares to the parent at an amount of different than the book value, so we still have shares going from the subsidiary to the parent, but now the amount is different than the book value. This increases the carrying amount of the parents investment by the fair value of the consideration. So in other words, the carrying amount of the parents investment in the subsidiary is going to go up by that what was paid for it that consideration given whether that be cash at the fair value of something other than cash. At consolidation, the amount of a non controlling interest needs to be adjusted to reflect the change in its interest in the subsidiary.

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