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Hi,
Would like some advice on the following:
Company A (Parent) sold a fixed asset to Company B (fully owned subsidiary) in 2011. Now the fixed asset is fully depreciated and Company A wants to buy the fixed asset back at a value given by an external valuer.
Question 1: Should the sale from Company B to A be eliminated in full provided the sale happens at the value given by a third party?
Question 2: Will there be any depreciation to the group since total sale proceeds will be a gain to Company B?
Thanks,
MelaniA1 the transaction will not be recorded as a “sale” ie it will not be included in “revenue” so there will be no “elimination”
On the occasion of the independent valuation, company B should revalue the asset to that independent valuation figure, then record the sale and recognise the profit in company B’s own records
Meanwhile company A will record the purchase at cost to company A ie the figure from the independent valuation
On consolidation, the company B retained earnings will be reduced by the profit amount and the combined assets will similarly be reduced by that amount
Adjustment will also need to be made for the depreciation that company A will have recorded. That adjustment will be to re-increase the retained earnings for company B and re-increase the combined assets by that same figure
Ok?
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