What is Intercompany fixed asset transfers?
In short
When one member of a consolidated group sells equipment to another at a gain, the gain is eliminated in consolidation and the asset restored to its original cost and accumulated depreciation.
Key takeaways
- Each year, the extra depreciation on the stepped-up amount is eliminated, recognizing the gain gradually over the remaining life.
- If the asset is later sold to an outsider, the remaining deferred gain is recognized then.
- Upstream sales share the effect with the noncontrolling interest.
Where it's tested
BAR: Business Combinations (Advanced) — study notes, a five-minute revision sheet and practice questions.
Practise: 3 questions
Question 1 of 3 · 0 answered
A parent sells inventory to its 80%-owned subsidiary at a profit, and the subsidiary still holds the goods at year-end. In consolidation, the unrealized profit is: