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Intercompany sale of depreciable assets Assume on January 1, 2015, a parent company a 75% interest...

Intercompany sale of depreciable assets

Assume on January 1, 2015, a parent company a 75% interest in a subsidiary's voting common stock. On the date of acquisition, the fair value of the subsidiary's net assets equaled their reported book values. On January 1, 2017, the subsidiary purchased a building for $576,000. The building has a useful life of 8 years and is depreciated on a straight-line basis with no salvage value. On January 1, 2019, the subsidiary sold the building to the parent for $504,000. The parent estimated that the building has a six year remaining useful life and no salvage value. The parent also uses the straight-line method of amortization. For the year ending December 31, 2019, the parent's "stand-alone" income (i.e., net income before recording any adjustments related to pre-consolidation investment accounting) is $600,000. The subsidiary's recorded net income is $120,000.

Consolidated building (net of accumulated depreciation):

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Answer #1

Builing cost 1st Jan 2017: $576000

Net of acumulated depreciation as on 1st Jan 2019 : $432000

Sold for : $504000 with profit $72000

However value to be recongnised in consolidated balance as on 1st Jan 2019 sheet is: $450000 (432000+ 25% of 72000)

and Building value Net of accumulated depreciation as on 31st Dec 2019 in parent company books : $ 420000 (504000 with 6yrs life and depreciation for one yr $ 84000)

however in consolidated books building value - Net of accumuated depreciation as on 31st Dec 2019 : $375000.

Regards

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