Intercompany Land Transactions Classroom Illustration Instructor Version Summer I 2009

Intercompany Land Transactions Classroom Illustration Instructor Version Summer I 2009

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Accounting 401 Intercompany Land Transfers Brief Classroom Notes and Exercise Summer I 2009 A. In order to learn how to account for intercompany land transfers, it is important to  review the accounting for land assets and to thoroughly understand equity  method accounting. B. The selling affiliate records on its books a realized gain (or loss) from the sale.  At the same time, the purchasing affiliate records the purchase on its books at  the price paid.  In the consolidated sense, this price is an inflated price. C. According to the consolidated entity, both the purchasing affiliate’s land account  and the selling affiliate’s retained earnings account (if an upstream sale) or  parent’s investment account (if a downstream sale) are overstated (or  understated) at the beginning of the period following the intercompany transfer.  This will be true until the period in which the purchasing affiliate sells the land to  a party outside of the consolidated entity. D. The periods in which the land is held by the purchasing affiliate are often referred  to as interim periods.  It is important to note that during these periods no  intercompany profit is realized.  This is true for non-depreciable assets but not  true for depreciable assets as will be discussed at another time.
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This note was uploaded on 03/09/2012 for the course ACCT 401 taught by Professor Staff during the Summer '08 term at Texas A&M.

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Intercompany Land Transactions Classroom Illustration Instructor Version Summer I 2009

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