Transactions between affiliates for sales and purchases of noncurrent assets create unrealized profits and losses to the consolidated entity. The consolidated entity eliminates such profits and losses in reporting the results of operations and its financial position while creating consolidated financial statements.
Intercompany transfers of noncurrent assets and services are much less frequent than intercompany inventory transfers. They most likely occur when mergers are completed, as a part of a reorganization of the combined companies.
First, Parent Company purchases land from an unrelated party. Then Parent Company sells the land to a subsidiary. Finally, the subsidiary sells the land to an unrelated party. The three transactions, and the amounts, are as follows … Read more
When one enterprise purchases services from a related enterprise, the purchasing enterprise typically records an expense transaction and the selling enterprise records a revenue transaction… Read more
INTERCOMPANY TRANSFERS OF DEPRECIABLE ASSETS