Slide AKT 307 AKL 1 7
7-1
Baker / Lembke / King
Intercompany
Inventory
Transactions
7
Electronic Presentation by
Douglas Cloud
Pepperdine University
Irwin/McGraw-Hill
©2001 by The McGraw-Hill Companies, Inc. All
Transactions of Affiliated Companies
• Inventory transactions are the most common
form of intercorporate exchange.
• Significantly, the consolidation procedures
relating to inventory transfers are quite similar
to fixed assets.
• The eliminations ensure that only the historical
cost of the inventory to the consolidated entity
is included in the consolidated balance sheet
when the inventory is still on hand and is
charged to cost of goods sold in the period
the
inventory is resold to nonaffiliates.
Irwin/McGraw-Hill
©2001 by The McGraw-Hill Companies, Inc. All
7-2
Transactions of Affiliated Companies
Parent
Parent
Company
Company
Subsidiary
Subsidiary
AA
Subsidiary
Subsidiary
BB
Consolidated Entity
Irwin/McGraw-Hill
©2001 by The McGraw-Hill Companies, Inc. All
7-3
Aspects of Workpaper Elimination
When
When intercorporate
intercorporate sales
sales include
include profits
profits
or
or losses,
losses, there
there are
are two
two aspects
aspects of
of the
the
workpaper
workpaper elimination
elimination needed
needed in
in the
the
period
period of
of transfer
transfer to
to prepare
prepare consolidated
consolidated
financial
financial statements.
statements.
Irwin/McGraw-Hill
©2001 by The McGraw-Hill Companies, Inc. All
7-4
Aspects of Workpaper Elimination
Elimination
Elimination of
of the
the income
income statement
statement effects
effects of
of
the
the intercorporate
intercorporate sale
sale in
in the
the period
periodin
inwhich
which the
the
sale
sale occurs,
occurs, including
including the
the sales
sales revenue
revenue from
fromthe
the
intercorporate
intercorporate sale
sale and
and the
the related
related cost
cost of
of goods
goods
sold
sold recorded
recorded by
by the
the transferring
transferring affiliate.
affiliate.
Elimination
Elimination from
from the
the inventory
inventory on
on the
the balance
balance
sheet
sheet of
of any
any profit
profit or
orloss
loss on
on the
theintercompany
intercompany
sale
sale that
that has
has not
not been
been confirmed
confirmed by
by resale
resale of
of the
the
inventory
inventory to
to outsiders.
outsiders.
Irwin/McGraw-Hill
©2001 by The McGraw-Hill Companies, Inc. All
7-5
Downstream Sale–Perpetual System
• Consolidated net income must be based on the
realized income of the transferring affiliate.
• Because intercompany profits from
downstream sales are on the books of the
parent, consolidated net income and the overall
claim of parent company shareholders must be
reduced by the full amount of the unrealized
profits.
Irwin/McGraw-Hill
©2001 by The McGraw-Hill Companies, Inc. All
7-6
Downstream Sale -- Perpetual Inventory
PT
PTInduk
Induk
Mar.
7,000,000
Mar.11Inventory
Inventory
7,000,000
Cash
7,000,000
Cash
7,000,000
Purchase
Purchaseof
ofinventory.
inventory.
March 1,
20X1
PT
PTAnak
Anak
PT
PTInduk
Induk
Purchased
inventory for
Rp7,000,000
Consolidated Entity
Irwin/McGraw-Hill
Same Period
©2001 by The McGraw-Hill Companies, Inc. All
7-7
Downstream Sale -- Perpetual Inventory
PT
PT
Anak
PT
PTInduk
Induk
Anak
Apr.
Cash
10,000,000
Cost
7,000,000
Apr.11Inventory
Cashof
Inventory
10,000,000
Cost
ofGoods
GoodsSold
Sold
7,000,000
Sales
Cash
10,000,000
Inventory
7,000,000
Sales
Cash
10,000,000
Inventory
7,000,000
Sale
Purchase
of
to
PT
from
Anak.
Induk.
Cost
of
inventory
sold
to
PT
Anak.
Sale
Purchase
of
inventory
ofinventory
inventory
to
PT
from
Anak.
PT
Induk.
Costof
ofinventory
inventory
sold
to
PTPT
Anak.
PT
PTInduk
Induk
April 1, 20X1
PT
PTAnak
Anak
Intercorporate
transfer of
inventory
Rp10,000,000
Consolidated Entity
Irwin/McGraw-Hill
Same Period
©2001 by The McGraw-Hill Companies, Inc. All
7-8
Downstream Sale -- Perpetual Inventory
7-9
PT
PTAnak
Anak
Nov.
Cash
15,000,000
Nov.55Cost
Cost
ofGoods
GoodsSold
Sold 10,000,000
10,000,000
Cashof
15,000,000
Inventory
10,000,000
Sales
15,000,000
Inventory
10,000,000
Sales
15,000,000
Cost
of
inventory
sold
to
Sale
Nonaffiliated.
Cost
ofinventory
inventoryto
sold
toNonaffiliated.
Nonaffiliated.
Saleof
of
inventory
to
Nonaffiliated.
PT
PTAnak
Anak
PT
PTInduk
Induk
Consolidated Entity
Irwin/McGraw-Hill
Nov. 5, 20X1
Sell
inventory for
Rp15,000,000
Same Period
©2001 by The McGraw-Hill Companies, Inc. All
Downstream Sale -- Perpetual Inventory
7-10
20X1
Item
PT Induk
PT Anak
Unadjusted
Totals
Consolidated
Amounts
Sales
Rp10,000,000 Rp15,000,000 Rp25,000,000 Rp15,000,000
Cost of goods
sold
-7,000,000
-10,000,000
-17,000,000
-7,000,000
Gross profit Rp 3,000,000 Rp 5,000,000 Rp 8,000,000 Rp 8,000,000
Irwin/McGraw-Hill
©2001 by The McGraw-Hill Companies, Inc. All
Downstream Sale -- Perpetual Inventory
7-11
Gross
Gross profit
profit of
of Rp8,000,000
Rp8,000,000 isis correct
correct from
fromaa
consolidated
consolidated viewpoint,
viewpoint, but
but consolidated
consolidatedsales
sales and
and cost
cost
of
of goods
goods sold
sold should
should be
be Rp15,000,000
Rp15,000,000 and
and Rp7,000,000
Rp7,000,000
respectively,
respectively, rather
rather than
than Rp25,000,000
Rp25,000,000 and
and
Rp17,000,000.
Rp17,000,000. In
In the
the consolidation
consolidation workpaper,
workpaper, the
the
intercompany
intercompany sale
sale must
must be
be eliminated.
eliminated.
Sales
10,000,000
Cost of goods sold
10,000,000
Eliminate intercompany inventory sale.
Irwin/McGraw-Hill
©2001 by The McGraw-Hill Companies, Inc. All
7-12
Resale in Period Following Transfer
March 1,
20X1
Purchased
inventory for
Rp7,000,000
PT
PTInduk
Induk
April 1,
20X1
Inter-corporate
transfer of
inventory
Rp10,000,000
PT
PTAnak
Anak
January 2,
20X2
Sell inventory
for
Rp15,000,000
Consolidated Entity
Irwin/McGraw-Hill
©2001 by The McGraw-Hill Companies, Inc. All
Basic Equity-Method Entries--20X1
7-13
During
During 20X1,
20X1, PT
PTInduk
Induk records
records its
its pro
pro rata
rata portion
portion of
ofPT
PT
Anak’
Anak’net
net income
income and
and dividends
dividendsfor
for 20X1:
20X1:
(9) Investment in PT Anak Stock 40,000,000
Income from Subsidiary
40,000,000
Record equity-method income. Rp50,000,000
x .80
(8) Cash
24,000,000
Investment in PT Anak
Stock
24,000,000
Rp30,000,000
x .80
Record dividends from PT Anak.
Irwin/McGraw-Hill
©2001 by The McGraw-Hill Companies, Inc. All
Consolidation Workpaper--20X1 (in ‘000)
PT Induk
PT Anak
Item
Income from
Subsidiary
40,000
Dividends
Declared
(60,000)
Investment in
PT Anak
256,000
Eliminations
Debits
Credits
Consolidated
(l0) 40,000
(30,000)
(10) 24,000
(10) 16,000
An
An entry
entry isis needed
needed to
to eliminate
eliminate PT
PTInduk’s
Induk’s
share
share of
of PT
PTAnak’
Anak’income
income and
and dividends.
dividends. This
This
entry
entry also
also eliminates
eliminates the
the change
changein
inthe
the
investment
investment account
account for
for the
the period.
period.
Irwin/McGraw-Hill
7-14
©2001 by The McGraw-Hill Companies, Inc. All
Consolidation Workpaper--20X1 (in ‘000)
PT Induk
PT Anak
Item
Income to Noncontrolling
Interest
Dividends
Declared
Noncontrolling
Interest
Eliminations
Debits
Credits
(11) 10,000
(60,000)
(30,000)
Consolidated
(10,000)
(11)
24,000
6,000
(11)
4,000
(10)
7-15
(60,000)
The
Thenoncontrolling
noncontrollinginterest
interestisisassigned
assignedaapro
prorata
rataportion
portionof
ofthe
the
net
netincome
incomeof
ofPT
PTAnak.
Anak. Also,
Also,the
thenoncontrolling
noncontrollingstockholders’
stockholders’
share
shareof
ofPT
PTAnak’
Anak’dividends
dividendsisiseliminated
eliminatedand
andthe
the
noncontrolling
noncontrollinginterest
interestisisincreased
increasedto
toreflect
reflectthe
theexcess
excessof
ofPT
PT
Anak’
its
Anak’income
incomeover
over
itsdividends.
dividends.
©2001 by The McGraw-Hill Companies, Inc. All
Irwin/McGraw-Hill
Consolidation Workpaper--20X1 (in ‘000)
PT Induk
PT Anak
Item
,Retained Earnings,
January 1
300,000
Investment in
PT Anak
Common Stock-PT Anak
Noncontrolling
Interest
100,000
Eliminations
Debits
Credits
(12)100,000
256,000
500,000
7-16
Consolidated
300,000
16,000
(12) 240,000
(10)
200,000
(12)200,000
500,000
(11)
(12)
4,000
60,000
64,000
An
Anentry
entryisisneeded
neededto
toeliminate
eliminatethe
thebeginning
beginningbalances
balancesof
ofPT
PTAnak’
Anak’
stockholders’
stockholders’equity
equityaccounts
accountsand
andPT
PTInduk’s
Induk’sinvestment
investmentaccount.
account. This
Thisentry
entry
also
alsoneeds
needsto
toestablish
establishthe
thenoncontrolling
noncontrollinginterest
interestatatthe
thebeginning
beginningof
ofthe
theperiod.
period.
Irwin/McGraw-Hill
©2001 by The McGraw-Hill Companies, Inc. All
Downstream Sale -- Inventory Not Resold
7-17
20X1
Item
PT Induk
PT Anak
Unadjusted Consolidated
Totals
Amounts
Sales
Rp10,000,000 Rp
-0- Rp10,000,000 Rp
-0Cost of goods
sold
-7,000,000
-0-7,000,000
-0Gross profit Rp 3,000,000 Rp
-0- Rp 3,000,000 Rp
-0Inventory
Rp
-0- Rp10,000,000 Rp10,000,000 Rp7,000,000
Irwin/McGraw-Hill
©2001 by The McGraw-Hill Companies, Inc. All
Consolidation Workpaper--20X1 (in ‘000)
PT Induk
PT Anak
Item
Eliminations
Debits
Credits
(13) 10,000
Consolidated
Sales
400,000
200,000
Cost of Goods
Sold
170,000
115,000
(13)
7,000
278,000
Inventory
100,000
75,000
(13)
3,000
172,000
590,000
An
An entry
entry isis required
required to
to eliminate
eliminate the
the effects
effects of
of the
the
intercompany
intercompany sale
sale of
of inventory.
inventory.
Irwin/McGraw-Hill
7-18
©2001 by The McGraw-Hill Companies, Inc. All
Consolidated Net Income--20X1
PT Induk’s separate operating income
Rp140,000,000
Less: Unrealized intercompany profit
on downstream inventory sale
-3,000,000
PT Induk’s separate realized income
Rp137,000,000
PT Induk’s share of PT Anak’ income:
PT Anak’s net income
Rp50,000,000
PT Induk’s proportionate share
x .80 40,000,000
Consolidated net income, 20X1
Rp177,000,000
Irwin/McGraw-Hill
©2001 by The McGraw-Hill Companies, Inc. All
7-19
Basic Equity-Method Entries--20X2
7-20
During
During 20X2,
20X2, PT
PTInduk
Induk records
records its
its pro
pro rata
rata portion
portion of
ofPT
PT
Anak’
Anak’net
net income
income and
and dividends
dividendsfor
for 20X2:
20X2:
(15) Investment in PT Anak Stock 60,000,000
Income from Subsidiary
60,000,000
Record equity-method income. Rp75,000,000
x .80
(14) Cash
32,000,000
Investment in PT Anak
Stock
32,000,000
Rp40,000,000
Record dividends from PT Anak. x .80
Irwin/McGraw-Hill
©2001 by The McGraw-Hill Companies, Inc. All
Consolidation Workpaper--20X2 (in ‘000)
PT Induk
PT Anak
Item
Income from
Subsidiary
60,000
Dividends
Declared
(60,000)
Investment in
PT Anak
284,000
Eliminations
Debits
Credits
Consolidated
(16) 60,000
(40,000)
(16) 32,000
(16) 28,000
An
An entry
entry isis needed
needed to
to eliminate
eliminate the
the effects
effects
of
of income
income from
fromPT
PTAnak
Anak and
and from
fromPT
PT
Induk’s
Induk’s share
share of
of dividends.
dividends.
Irwin/McGraw-Hill
7-21
©2001 by The McGraw-Hill Companies, Inc. All
Consolidation Workspaper--20X2 (in ‘000)
PT Induk
PT Anak
Item
Income to
Noncontrolling
Interest
Dividends
Declared
(17)15,000
(60,000)
Noncontrolling
Interest
Eliminations
Debits
Credits
(40,000)
Consolidated
(15,000)
(16) 32,000
(17)
8,000
(17)
7,000
(60,000)
An
Anentry
entryisisneeded
neededto
toassign
assign the
thenoncontrolling
noncontrolling
shareholders
shareholderstheir
theirshare
shareof
ofincome
incomeand
andestablish
establishthe
the
20X2
20X2increase
increasein
inthe
theclaim
claimof
ofnoncontrolling
noncontrolling
shareholders
shareholderson
onthe
thenet
netassets
assetsof
ofPT
PTAnak.
Anak.
Irwin/McGraw-Hill
7-22
©2001 by The McGraw-Hill Companies, Inc. All
Consolidation Workpaper--20X2 (in ‘000)
PT Induk
PT Anak
Item
Retained Earnings,
January 1
420,000
Investment in
PT Anak
284,000
Common Stock
500,000
Noncontrolling
Interest
120,000
Eliminations
Debits
Credits
(18)120,000
Consolidated
420,000
28,000
(18)256,000
(16)
200,000
(18)200,000
500,000
(17)
(18)
7,000
64,000
71,000
AAworkpaper
workpaperentry
entryisisneeded
neededto
toeliminate
eliminatethe
thebeginning
beginning
stockholders’
stockholders’equity
equitybalances
balancesof
ofPT
PTAnak
Anakand
andPT
PT
Induk’s
Induk’sbeginning
beginninginvestment
investmentbalance.
balance.
Irwin/McGraw-Hill
7-23
©2001 by The McGraw-Hill Companies, Inc. All
Downstream Sale -- Inventory Not Resold
7-24
20X2
Item
Sales
Cost of goods
sold
Gross profit
Irwin/McGraw-Hill
PT Induk
PT Anak
Unadjusted
Totals
Consolidated
Amounts
Rp
-0- Rp 15,000,000 Rp15,000,000 Rp 15,000,000
Rp
-0- (10,000,000) (10,000,000)
(7,000,000)
-0- Rp 5,000,000 Rp 5,000,000 Rp 8,000,000
©2001 by The McGraw-Hill Companies, Inc. All
Consolidation Workpaper--20X2 (in ‘000)
PT Induk
PT Anak
Item
Cost of Goods
Sold
180,000
160,000
Retained Earnings,
January 1
420,000
120,000
Eliminations
Debits
Credits
(19) 3,000
(19)
(18)120,000
3,000
Consolidated
337,000
417,000
An
An entry
entry isis required
required to
to eliminate
eliminate
beginning
beginning inventory
inventory profit.
profit.
Irwin/McGraw-Hill
7-25
©2001 by The McGraw-Hill Companies, Inc. All
Consolidated Net Income--20X2
7-26
PT Induk’s separate income
Rp160,000,000
Realization of deferred intercompany profit
3,000,000
PT Induk’s separate realized income
Rp163,000,000
PT Induk’s share of PT Anak’s income:
PT Anak’ net income
Rp75,000,000
PT Induk’s proportionate share
x .80 60,000,000
Consolidated net income, 20X2
Rp223,000,000
Irwin/McGraw-Hill
©2001 by The McGraw-Hill Companies, Inc. All
If Inventory Held > 2 periods
Retained Earnings
Inventory
xxx
xxx
For Previous PT Induk Case:
Retained Earnings
3,000,000
Inventory
3,000,000
Irwin/McGraw-Hill
©2001 by The McGraw-Hill Companies, Inc. All
7-27
Upstream Sale–Perpetual System
7-28
• When an upstream sale of inventory occurs and
the inventory is resold by the parent to a
nonaffiliate during the same period
– All the eliminating entries in the consolidation work
paper are identical to those in the downstream case.
• When the inventory is not resold to a nonaffiliate
before the end of the period
– work paper eliminating entries are different from the
downstream case only by the apportionment of the
unrealized intercompany profit to both the controlling
and noncontrolling interests.
Irwin/McGraw-Hill
©2001 by The McGraw-Hill Companies, Inc. All
7-29
Upstream Sale--Perpetual Inventory
Jan. 2
20X2
Sell inventory
for
Rp15,000,000
PT
PTInduk
Induk
April 1,
20X1
Intercorporate
transfer of
inventory
Rp10,000,000
PT
PTAnak
Anak
March 1,
20X1
Purchased
inventory for
Rp7,000,000
Consolidated Entity
Irwin/McGraw-Hill
©2001 by The McGraw-Hill Companies, Inc. All
Basic Equity--Method Entries--20X1
7-30
(22) Investment in PT Anak
Stock
40,000,000
Income from Subsidiary
40,000,000
Record equity-method income.
Rp50,000,000
x .80
(21) Cash
24,000,000
Investment in PT Anak
Foods Stock
24,000,000
Record dividends from PT Anak.
Rp50,000,000
x .80
Irwin/McGraw-Hill
©2001 by The McGraw-Hill Companies, Inc. All
Consolidation Workpaper--20X1 (in ‘000)
PT Induk
PT Anak
Item
Income from
Subsidiary
40,000
Dividends
Declared
(60,000)
Investment in
PT Anak
256,000
Eliminations
Debits
Credits
Consolidated
(23) 40,000
(30,000)
(23)
24,000
(23)
16,000
An
An entry
entry isis needed
needed to
to eliminate
eliminate the
the effects
effects
of
of income
income from
fromPT
PTAnak
Anak and
and from
fromPT
PT
Induk’s
Induk’s share
share of
of dividends.
dividends.
Irwin/McGraw-Hill
7-31
©2001 by The McGraw-Hill Companies, Inc. All
Consolidation Workpaper--20X1 (in ‘000)
PT Induk
PT Anak
Item
-Income to Noncontrolling
Interest
Dividends
Declared
Noncontrolling
Interest
Eliminations
Debits
Credits
(24)
(60,000)
(30,000)
9,400
Consolidated
(9,400)
(23) 24,000
(24)
6,000
(24)
3,400
7-32
(60,000)
The
Thenoncontrolling
noncontrollinginterest
interestisisassigned
assignedaapro
prorata
rataportion
portionof
ofthe
the
net
netincome
incomeof
ofPT
PTAnak.
Anak. Also,
Also,the
thenoncontrolling
noncontrollingstockholders’
stockholders’
share
shareof
ofPT
PTAnak’
Anak’dividends
dividendsisiseliminated
eliminatedand
andthe
the
noncontrolling
noncontrollinginterest
interestisisincreased
increasedto
toreflect
reflectthe
theexcess
excessof
ofPT
PT
Anak’
its
Anak’income
incomeover
over
itsdividends.
dividends.
©2001 by The McGraw-Hill Companies, Inc. All
Irwin/McGraw-Hill
Consolidation Workpaper--20X1 (in ‘000)
PT Induk
PT Anak
Item
Retained Earnings,
January 1
300,000
Investment in
PT Anak
Common Stock
Noncontrolling
Interest
100,000
Eliminations
Debits
Credits
(25)100,000
256,000
500,000
Consolidated
300,000
16,000
(25) 240,000
(23)
200,000
(25)200,000
500,000
(24)
(25)
3,400
60,000
7-33
63,400
An
Anentry
entryisisneeded
neededto
toeliminate
eliminatethe
thebeginning
beginningbalances
balancesof
ofPT
PT
Anak’
Anak’stockholders’
stockholders’equity
equityaccounts
accountsand
andPT
PTInduk’s
Induk’sinvestment
investment
account.
account. This
Thisentry
entryalso
alsoneeds
needsto
toestablish
establishthe
thenoncontrolling
noncontrolling
interest
atatthe
beginning
of
the
period.
interest
the
beginning
of
the
period.
©2001 by The McGraw-Hill Companies, Inc. All
Irwin/McGraw-Hill
Consolidation Workpaper--20X1 (in ‘000)
PT Induk
PT Anak
Item
Eliminations
Debits
Credits
Consolidated
Sales
400,000
200,000
Cost of Goods
Sold
170,000
115,000
(26)
7,000
278,000
Inventory
100,000
75,000
(26)
3,000
172,000
(26)10,000
590,000
An
An entry
entry isis required
required to
to eliminate
eliminate the
the
intercompany
intercompany upstream
upstreamsale
sale of
of inventory.
inventory.
Irwin/McGraw-Hill
7-34
©2001 by The McGraw-Hill Companies, Inc. All
Consolidated Net Income--20X1
PT Induk’s separate operating income
Rp140,000,000
PT Induk’s share of PT Anak’
income:
PT Anak’s net income
Rp50,000,000
Less: Unrealized intercompany
profit on upstream inventory sale
-3,000,000
PT Anak’ realized income
Rp47,000,000
PT Induk’s proportionate share
x .80
37,600,000
Consolidated net income, 20X1
Rp177,600,000
Irwin/McGraw-Hill
©2001 by The McGraw-Hill Companies, Inc. All
7-35
Basic Equity--Method Entries--20X2
7-36
(28) Investment in PT Anak
Stock
60,000,000
Income from Subsidiary
60,000,000
Record equity-method income.
Rp75,000,000
x .80
(27) Cash
32,000,000
Investment in PT Anak
Stock
32,000,000
Record dividends from PT Anak.
Rp75,000,000
x .80
Irwin/McGraw-Hill
©2001 by The McGraw-Hill Companies, Inc. All
Consolidation Workpaper--20X2 (in ‘000)
PT Induk
PT Anak
Item
Income from
Subsidiary
60,000
Dividends
Declared
(60,000)
Investment in
PT Anak
284,000
Eliminations
Debits
Credits
Consolidated
(29) 60,000
(40,000)
(29)
32,000
(29)
28,000
An
An entry
entry isis needed
needed to
to eliminate
eliminate the
the effects
effects
of
of income
income from
fromPT
PTAnak
Anak and
and from
fromPT
PT
Induk’s
Induk’s share
share of
of dividends.
dividends.
Irwin/McGraw-Hill
7-37
©2001 by The McGraw-Hill Companies, Inc. All
Consolidation Workpaper--20X2 (in ‘000)
PT Induk
PT Anak
Item
Income to
Noncontrolling
Interest
Dividends
Declared
(30)15,600
(60,000)
Noncontrolling
Interest
Eliminations
Debits
Credits
(40,000)
Consolidated
(15,600)
(30)
32,000
8,000
(30)
7,600
(29)
(60,000)
An
Anentry
entryisisneeded
neededto
toassign
assign the
thenoncontrolling
noncontrolling
shareholders
shareholderstheir
theirshare
shareof
ofincome
incomeand
andestablish
establishthe
the
20X2
20X2increase
increasein
inthe
theclaim
claimof
ofnoncontrolling
noncontrolling
shareholders
shareholderson
onthe
thenet
netassets
assetsof
ofPT
PTAnak.
Anak.
Irwin/McGraw-Hill
7-38
©2001 by The McGraw-Hill Companies, Inc. All
Consolidation Workpaper--20X2 (in ‘000)
PT Induk
PT Anak
Item
Retained Earnings,
January 1
420,000
Investment in
PT Anak
284,000
Common Stock
500,000
Noncontrolling
Interest
120,000
Eliminations
Debits
Credits
(31)120,000
Consolidated
420,000
28,000
(31)256,000
(29)
200,000
(31)200,000
500,000
(30)
(31)
7,600
64,000
AAworkpaper
workpaperentry
entryisisneeded
neededto
toeliminate
eliminatethe
thebeginning
beginning
stockholders’
stockholders’equity
equitybalances
balancesof
ofPT
PTAnak
Anakand
andPT
PT
Induk’s
Induk’sbeginning
beginninginvestment
investmentbalance.
balance.
Irwin/McGraw-Hill
7-39
©2001 by The McGraw-Hill Companies, Inc. All
Consolidation Workpaper--20X2 (in ‘000)
PT Induk
PT Anak
Item
Cost of Goods
Sold
180,000
160,000
Retained Earnings,
January 1
420,000
120,000
Noncontrolling
Interest
Eliminations
Debits
Credits
(32)
3,000
Consolidated
337,000
(31) 120,000
(32)
2,400
(32)
600
417,600
(30)
(31)
7,600
64,000
71,000
AAworkpaper
workpaperentry
entryisisneeded
neededto
toeliminate
eliminatethe
thebeginning
beginning
inventory
inventoryprofit:
profit: Rp3,000,000
Rp3,000,000xx.80
.80and
andRp3,000,000
Rp3,000,000xx
.20.
.20.
Irwin/McGraw-Hill
7-40
©2001 by The McGraw-Hill Companies, Inc. All
Consolidated Net Income--20X2
PT Induk’s separate operating income
Rp160,000,000
PT Induk’s share of PT Anak’
income:
PT Anak’s net income
Rp75,000,000
Realized intercompany profit
on upstream inventory sale
3,000,000
PT Anak’ realized income
Rp78,000,000
PT Induk’s proportionate share
x .80
62,400,000
Consolidated net income, 20X2
Rp222,400,000
Irwin/McGraw-Hill
©2001 by The McGraw-Hill Companies, Inc. All
7-41
7-42
Chapter Seven
The
End
Irwin/McGraw-Hill
©2001 by The McGraw-Hill Companies, Inc. All
Baker / Lembke / King
Intercompany
Inventory
Transactions
7
Electronic Presentation by
Douglas Cloud
Pepperdine University
Irwin/McGraw-Hill
©2001 by The McGraw-Hill Companies, Inc. All
Transactions of Affiliated Companies
• Inventory transactions are the most common
form of intercorporate exchange.
• Significantly, the consolidation procedures
relating to inventory transfers are quite similar
to fixed assets.
• The eliminations ensure that only the historical
cost of the inventory to the consolidated entity
is included in the consolidated balance sheet
when the inventory is still on hand and is
charged to cost of goods sold in the period
the
inventory is resold to nonaffiliates.
Irwin/McGraw-Hill
©2001 by The McGraw-Hill Companies, Inc. All
7-2
Transactions of Affiliated Companies
Parent
Parent
Company
Company
Subsidiary
Subsidiary
AA
Subsidiary
Subsidiary
BB
Consolidated Entity
Irwin/McGraw-Hill
©2001 by The McGraw-Hill Companies, Inc. All
7-3
Aspects of Workpaper Elimination
When
When intercorporate
intercorporate sales
sales include
include profits
profits
or
or losses,
losses, there
there are
are two
two aspects
aspects of
of the
the
workpaper
workpaper elimination
elimination needed
needed in
in the
the
period
period of
of transfer
transfer to
to prepare
prepare consolidated
consolidated
financial
financial statements.
statements.
Irwin/McGraw-Hill
©2001 by The McGraw-Hill Companies, Inc. All
7-4
Aspects of Workpaper Elimination
Elimination
Elimination of
of the
the income
income statement
statement effects
effects of
of
the
the intercorporate
intercorporate sale
sale in
in the
the period
periodin
inwhich
which the
the
sale
sale occurs,
occurs, including
including the
the sales
sales revenue
revenue from
fromthe
the
intercorporate
intercorporate sale
sale and
and the
the related
related cost
cost of
of goods
goods
sold
sold recorded
recorded by
by the
the transferring
transferring affiliate.
affiliate.
Elimination
Elimination from
from the
the inventory
inventory on
on the
the balance
balance
sheet
sheet of
of any
any profit
profit or
orloss
loss on
on the
theintercompany
intercompany
sale
sale that
that has
has not
not been
been confirmed
confirmed by
by resale
resale of
of the
the
inventory
inventory to
to outsiders.
outsiders.
Irwin/McGraw-Hill
©2001 by The McGraw-Hill Companies, Inc. All
7-5
Downstream Sale–Perpetual System
• Consolidated net income must be based on the
realized income of the transferring affiliate.
• Because intercompany profits from
downstream sales are on the books of the
parent, consolidated net income and the overall
claim of parent company shareholders must be
reduced by the full amount of the unrealized
profits.
Irwin/McGraw-Hill
©2001 by The McGraw-Hill Companies, Inc. All
7-6
Downstream Sale -- Perpetual Inventory
PT
PTInduk
Induk
Mar.
7,000,000
Mar.11Inventory
Inventory
7,000,000
Cash
7,000,000
Cash
7,000,000
Purchase
Purchaseof
ofinventory.
inventory.
March 1,
20X1
PT
PTAnak
Anak
PT
PTInduk
Induk
Purchased
inventory for
Rp7,000,000
Consolidated Entity
Irwin/McGraw-Hill
Same Period
©2001 by The McGraw-Hill Companies, Inc. All
7-7
Downstream Sale -- Perpetual Inventory
PT
PT
Anak
PT
PTInduk
Induk
Anak
Apr.
Cash
10,000,000
Cost
7,000,000
Apr.11Inventory
Cashof
Inventory
10,000,000
Cost
ofGoods
GoodsSold
Sold
7,000,000
Sales
Cash
10,000,000
Inventory
7,000,000
Sales
Cash
10,000,000
Inventory
7,000,000
Sale
Purchase
of
to
PT
from
Anak.
Induk.
Cost
of
inventory
sold
to
PT
Anak.
Sale
Purchase
of
inventory
ofinventory
inventory
to
PT
from
Anak.
PT
Induk.
Costof
ofinventory
inventory
sold
to
PTPT
Anak.
PT
PTInduk
Induk
April 1, 20X1
PT
PTAnak
Anak
Intercorporate
transfer of
inventory
Rp10,000,000
Consolidated Entity
Irwin/McGraw-Hill
Same Period
©2001 by The McGraw-Hill Companies, Inc. All
7-8
Downstream Sale -- Perpetual Inventory
7-9
PT
PTAnak
Anak
Nov.
Cash
15,000,000
Nov.55Cost
Cost
ofGoods
GoodsSold
Sold 10,000,000
10,000,000
Cashof
15,000,000
Inventory
10,000,000
Sales
15,000,000
Inventory
10,000,000
Sales
15,000,000
Cost
of
inventory
sold
to
Sale
Nonaffiliated.
Cost
ofinventory
inventoryto
sold
toNonaffiliated.
Nonaffiliated.
Saleof
of
inventory
to
Nonaffiliated.
PT
PTAnak
Anak
PT
PTInduk
Induk
Consolidated Entity
Irwin/McGraw-Hill
Nov. 5, 20X1
Sell
inventory for
Rp15,000,000
Same Period
©2001 by The McGraw-Hill Companies, Inc. All
Downstream Sale -- Perpetual Inventory
7-10
20X1
Item
PT Induk
PT Anak
Unadjusted
Totals
Consolidated
Amounts
Sales
Rp10,000,000 Rp15,000,000 Rp25,000,000 Rp15,000,000
Cost of goods
sold
-7,000,000
-10,000,000
-17,000,000
-7,000,000
Gross profit Rp 3,000,000 Rp 5,000,000 Rp 8,000,000 Rp 8,000,000
Irwin/McGraw-Hill
©2001 by The McGraw-Hill Companies, Inc. All
Downstream Sale -- Perpetual Inventory
7-11
Gross
Gross profit
profit of
of Rp8,000,000
Rp8,000,000 isis correct
correct from
fromaa
consolidated
consolidated viewpoint,
viewpoint, but
but consolidated
consolidatedsales
sales and
and cost
cost
of
of goods
goods sold
sold should
should be
be Rp15,000,000
Rp15,000,000 and
and Rp7,000,000
Rp7,000,000
respectively,
respectively, rather
rather than
than Rp25,000,000
Rp25,000,000 and
and
Rp17,000,000.
Rp17,000,000. In
In the
the consolidation
consolidation workpaper,
workpaper, the
the
intercompany
intercompany sale
sale must
must be
be eliminated.
eliminated.
Sales
10,000,000
Cost of goods sold
10,000,000
Eliminate intercompany inventory sale.
Irwin/McGraw-Hill
©2001 by The McGraw-Hill Companies, Inc. All
7-12
Resale in Period Following Transfer
March 1,
20X1
Purchased
inventory for
Rp7,000,000
PT
PTInduk
Induk
April 1,
20X1
Inter-corporate
transfer of
inventory
Rp10,000,000
PT
PTAnak
Anak
January 2,
20X2
Sell inventory
for
Rp15,000,000
Consolidated Entity
Irwin/McGraw-Hill
©2001 by The McGraw-Hill Companies, Inc. All
Basic Equity-Method Entries--20X1
7-13
During
During 20X1,
20X1, PT
PTInduk
Induk records
records its
its pro
pro rata
rata portion
portion of
ofPT
PT
Anak’
Anak’net
net income
income and
and dividends
dividendsfor
for 20X1:
20X1:
(9) Investment in PT Anak Stock 40,000,000
Income from Subsidiary
40,000,000
Record equity-method income. Rp50,000,000
x .80
(8) Cash
24,000,000
Investment in PT Anak
Stock
24,000,000
Rp30,000,000
x .80
Record dividends from PT Anak.
Irwin/McGraw-Hill
©2001 by The McGraw-Hill Companies, Inc. All
Consolidation Workpaper--20X1 (in ‘000)
PT Induk
PT Anak
Item
Income from
Subsidiary
40,000
Dividends
Declared
(60,000)
Investment in
PT Anak
256,000
Eliminations
Debits
Credits
Consolidated
(l0) 40,000
(30,000)
(10) 24,000
(10) 16,000
An
An entry
entry isis needed
needed to
to eliminate
eliminate PT
PTInduk’s
Induk’s
share
share of
of PT
PTAnak’
Anak’income
income and
and dividends.
dividends. This
This
entry
entry also
also eliminates
eliminates the
the change
changein
inthe
the
investment
investment account
account for
for the
the period.
period.
Irwin/McGraw-Hill
7-14
©2001 by The McGraw-Hill Companies, Inc. All
Consolidation Workpaper--20X1 (in ‘000)
PT Induk
PT Anak
Item
Income to Noncontrolling
Interest
Dividends
Declared
Noncontrolling
Interest
Eliminations
Debits
Credits
(11) 10,000
(60,000)
(30,000)
Consolidated
(10,000)
(11)
24,000
6,000
(11)
4,000
(10)
7-15
(60,000)
The
Thenoncontrolling
noncontrollinginterest
interestisisassigned
assignedaapro
prorata
rataportion
portionof
ofthe
the
net
netincome
incomeof
ofPT
PTAnak.
Anak. Also,
Also,the
thenoncontrolling
noncontrollingstockholders’
stockholders’
share
shareof
ofPT
PTAnak’
Anak’dividends
dividendsisiseliminated
eliminatedand
andthe
the
noncontrolling
noncontrollinginterest
interestisisincreased
increasedto
toreflect
reflectthe
theexcess
excessof
ofPT
PT
Anak’
its
Anak’income
incomeover
over
itsdividends.
dividends.
©2001 by The McGraw-Hill Companies, Inc. All
Irwin/McGraw-Hill
Consolidation Workpaper--20X1 (in ‘000)
PT Induk
PT Anak
Item
,Retained Earnings,
January 1
300,000
Investment in
PT Anak
Common Stock-PT Anak
Noncontrolling
Interest
100,000
Eliminations
Debits
Credits
(12)100,000
256,000
500,000
7-16
Consolidated
300,000
16,000
(12) 240,000
(10)
200,000
(12)200,000
500,000
(11)
(12)
4,000
60,000
64,000
An
Anentry
entryisisneeded
neededto
toeliminate
eliminatethe
thebeginning
beginningbalances
balancesof
ofPT
PTAnak’
Anak’
stockholders’
stockholders’equity
equityaccounts
accountsand
andPT
PTInduk’s
Induk’sinvestment
investmentaccount.
account. This
Thisentry
entry
also
alsoneeds
needsto
toestablish
establishthe
thenoncontrolling
noncontrollinginterest
interestatatthe
thebeginning
beginningof
ofthe
theperiod.
period.
Irwin/McGraw-Hill
©2001 by The McGraw-Hill Companies, Inc. All
Downstream Sale -- Inventory Not Resold
7-17
20X1
Item
PT Induk
PT Anak
Unadjusted Consolidated
Totals
Amounts
Sales
Rp10,000,000 Rp
-0- Rp10,000,000 Rp
-0Cost of goods
sold
-7,000,000
-0-7,000,000
-0Gross profit Rp 3,000,000 Rp
-0- Rp 3,000,000 Rp
-0Inventory
Rp
-0- Rp10,000,000 Rp10,000,000 Rp7,000,000
Irwin/McGraw-Hill
©2001 by The McGraw-Hill Companies, Inc. All
Consolidation Workpaper--20X1 (in ‘000)
PT Induk
PT Anak
Item
Eliminations
Debits
Credits
(13) 10,000
Consolidated
Sales
400,000
200,000
Cost of Goods
Sold
170,000
115,000
(13)
7,000
278,000
Inventory
100,000
75,000
(13)
3,000
172,000
590,000
An
An entry
entry isis required
required to
to eliminate
eliminate the
the effects
effects of
of the
the
intercompany
intercompany sale
sale of
of inventory.
inventory.
Irwin/McGraw-Hill
7-18
©2001 by The McGraw-Hill Companies, Inc. All
Consolidated Net Income--20X1
PT Induk’s separate operating income
Rp140,000,000
Less: Unrealized intercompany profit
on downstream inventory sale
-3,000,000
PT Induk’s separate realized income
Rp137,000,000
PT Induk’s share of PT Anak’ income:
PT Anak’s net income
Rp50,000,000
PT Induk’s proportionate share
x .80 40,000,000
Consolidated net income, 20X1
Rp177,000,000
Irwin/McGraw-Hill
©2001 by The McGraw-Hill Companies, Inc. All
7-19
Basic Equity-Method Entries--20X2
7-20
During
During 20X2,
20X2, PT
PTInduk
Induk records
records its
its pro
pro rata
rata portion
portion of
ofPT
PT
Anak’
Anak’net
net income
income and
and dividends
dividendsfor
for 20X2:
20X2:
(15) Investment in PT Anak Stock 60,000,000
Income from Subsidiary
60,000,000
Record equity-method income. Rp75,000,000
x .80
(14) Cash
32,000,000
Investment in PT Anak
Stock
32,000,000
Rp40,000,000
Record dividends from PT Anak. x .80
Irwin/McGraw-Hill
©2001 by The McGraw-Hill Companies, Inc. All
Consolidation Workpaper--20X2 (in ‘000)
PT Induk
PT Anak
Item
Income from
Subsidiary
60,000
Dividends
Declared
(60,000)
Investment in
PT Anak
284,000
Eliminations
Debits
Credits
Consolidated
(16) 60,000
(40,000)
(16) 32,000
(16) 28,000
An
An entry
entry isis needed
needed to
to eliminate
eliminate the
the effects
effects
of
of income
income from
fromPT
PTAnak
Anak and
and from
fromPT
PT
Induk’s
Induk’s share
share of
of dividends.
dividends.
Irwin/McGraw-Hill
7-21
©2001 by The McGraw-Hill Companies, Inc. All
Consolidation Workspaper--20X2 (in ‘000)
PT Induk
PT Anak
Item
Income to
Noncontrolling
Interest
Dividends
Declared
(17)15,000
(60,000)
Noncontrolling
Interest
Eliminations
Debits
Credits
(40,000)
Consolidated
(15,000)
(16) 32,000
(17)
8,000
(17)
7,000
(60,000)
An
Anentry
entryisisneeded
neededto
toassign
assign the
thenoncontrolling
noncontrolling
shareholders
shareholderstheir
theirshare
shareof
ofincome
incomeand
andestablish
establishthe
the
20X2
20X2increase
increasein
inthe
theclaim
claimof
ofnoncontrolling
noncontrolling
shareholders
shareholderson
onthe
thenet
netassets
assetsof
ofPT
PTAnak.
Anak.
Irwin/McGraw-Hill
7-22
©2001 by The McGraw-Hill Companies, Inc. All
Consolidation Workpaper--20X2 (in ‘000)
PT Induk
PT Anak
Item
Retained Earnings,
January 1
420,000
Investment in
PT Anak
284,000
Common Stock
500,000
Noncontrolling
Interest
120,000
Eliminations
Debits
Credits
(18)120,000
Consolidated
420,000
28,000
(18)256,000
(16)
200,000
(18)200,000
500,000
(17)
(18)
7,000
64,000
71,000
AAworkpaper
workpaperentry
entryisisneeded
neededto
toeliminate
eliminatethe
thebeginning
beginning
stockholders’
stockholders’equity
equitybalances
balancesof
ofPT
PTAnak
Anakand
andPT
PT
Induk’s
Induk’sbeginning
beginninginvestment
investmentbalance.
balance.
Irwin/McGraw-Hill
7-23
©2001 by The McGraw-Hill Companies, Inc. All
Downstream Sale -- Inventory Not Resold
7-24
20X2
Item
Sales
Cost of goods
sold
Gross profit
Irwin/McGraw-Hill
PT Induk
PT Anak
Unadjusted
Totals
Consolidated
Amounts
Rp
-0- Rp 15,000,000 Rp15,000,000 Rp 15,000,000
Rp
-0- (10,000,000) (10,000,000)
(7,000,000)
-0- Rp 5,000,000 Rp 5,000,000 Rp 8,000,000
©2001 by The McGraw-Hill Companies, Inc. All
Consolidation Workpaper--20X2 (in ‘000)
PT Induk
PT Anak
Item
Cost of Goods
Sold
180,000
160,000
Retained Earnings,
January 1
420,000
120,000
Eliminations
Debits
Credits
(19) 3,000
(19)
(18)120,000
3,000
Consolidated
337,000
417,000
An
An entry
entry isis required
required to
to eliminate
eliminate
beginning
beginning inventory
inventory profit.
profit.
Irwin/McGraw-Hill
7-25
©2001 by The McGraw-Hill Companies, Inc. All
Consolidated Net Income--20X2
7-26
PT Induk’s separate income
Rp160,000,000
Realization of deferred intercompany profit
3,000,000
PT Induk’s separate realized income
Rp163,000,000
PT Induk’s share of PT Anak’s income:
PT Anak’ net income
Rp75,000,000
PT Induk’s proportionate share
x .80 60,000,000
Consolidated net income, 20X2
Rp223,000,000
Irwin/McGraw-Hill
©2001 by The McGraw-Hill Companies, Inc. All
If Inventory Held > 2 periods
Retained Earnings
Inventory
xxx
xxx
For Previous PT Induk Case:
Retained Earnings
3,000,000
Inventory
3,000,000
Irwin/McGraw-Hill
©2001 by The McGraw-Hill Companies, Inc. All
7-27
Upstream Sale–Perpetual System
7-28
• When an upstream sale of inventory occurs and
the inventory is resold by the parent to a
nonaffiliate during the same period
– All the eliminating entries in the consolidation work
paper are identical to those in the downstream case.
• When the inventory is not resold to a nonaffiliate
before the end of the period
– work paper eliminating entries are different from the
downstream case only by the apportionment of the
unrealized intercompany profit to both the controlling
and noncontrolling interests.
Irwin/McGraw-Hill
©2001 by The McGraw-Hill Companies, Inc. All
7-29
Upstream Sale--Perpetual Inventory
Jan. 2
20X2
Sell inventory
for
Rp15,000,000
PT
PTInduk
Induk
April 1,
20X1
Intercorporate
transfer of
inventory
Rp10,000,000
PT
PTAnak
Anak
March 1,
20X1
Purchased
inventory for
Rp7,000,000
Consolidated Entity
Irwin/McGraw-Hill
©2001 by The McGraw-Hill Companies, Inc. All
Basic Equity--Method Entries--20X1
7-30
(22) Investment in PT Anak
Stock
40,000,000
Income from Subsidiary
40,000,000
Record equity-method income.
Rp50,000,000
x .80
(21) Cash
24,000,000
Investment in PT Anak
Foods Stock
24,000,000
Record dividends from PT Anak.
Rp50,000,000
x .80
Irwin/McGraw-Hill
©2001 by The McGraw-Hill Companies, Inc. All
Consolidation Workpaper--20X1 (in ‘000)
PT Induk
PT Anak
Item
Income from
Subsidiary
40,000
Dividends
Declared
(60,000)
Investment in
PT Anak
256,000
Eliminations
Debits
Credits
Consolidated
(23) 40,000
(30,000)
(23)
24,000
(23)
16,000
An
An entry
entry isis needed
needed to
to eliminate
eliminate the
the effects
effects
of
of income
income from
fromPT
PTAnak
Anak and
and from
fromPT
PT
Induk’s
Induk’s share
share of
of dividends.
dividends.
Irwin/McGraw-Hill
7-31
©2001 by The McGraw-Hill Companies, Inc. All
Consolidation Workpaper--20X1 (in ‘000)
PT Induk
PT Anak
Item
-Income to Noncontrolling
Interest
Dividends
Declared
Noncontrolling
Interest
Eliminations
Debits
Credits
(24)
(60,000)
(30,000)
9,400
Consolidated
(9,400)
(23) 24,000
(24)
6,000
(24)
3,400
7-32
(60,000)
The
Thenoncontrolling
noncontrollinginterest
interestisisassigned
assignedaapro
prorata
rataportion
portionof
ofthe
the
net
netincome
incomeof
ofPT
PTAnak.
Anak. Also,
Also,the
thenoncontrolling
noncontrollingstockholders’
stockholders’
share
shareof
ofPT
PTAnak’
Anak’dividends
dividendsisiseliminated
eliminatedand
andthe
the
noncontrolling
noncontrollinginterest
interestisisincreased
increasedto
toreflect
reflectthe
theexcess
excessof
ofPT
PT
Anak’
its
Anak’income
incomeover
over
itsdividends.
dividends.
©2001 by The McGraw-Hill Companies, Inc. All
Irwin/McGraw-Hill
Consolidation Workpaper--20X1 (in ‘000)
PT Induk
PT Anak
Item
Retained Earnings,
January 1
300,000
Investment in
PT Anak
Common Stock
Noncontrolling
Interest
100,000
Eliminations
Debits
Credits
(25)100,000
256,000
500,000
Consolidated
300,000
16,000
(25) 240,000
(23)
200,000
(25)200,000
500,000
(24)
(25)
3,400
60,000
7-33
63,400
An
Anentry
entryisisneeded
neededto
toeliminate
eliminatethe
thebeginning
beginningbalances
balancesof
ofPT
PT
Anak’
Anak’stockholders’
stockholders’equity
equityaccounts
accountsand
andPT
PTInduk’s
Induk’sinvestment
investment
account.
account. This
Thisentry
entryalso
alsoneeds
needsto
toestablish
establishthe
thenoncontrolling
noncontrolling
interest
atatthe
beginning
of
the
period.
interest
the
beginning
of
the
period.
©2001 by The McGraw-Hill Companies, Inc. All
Irwin/McGraw-Hill
Consolidation Workpaper--20X1 (in ‘000)
PT Induk
PT Anak
Item
Eliminations
Debits
Credits
Consolidated
Sales
400,000
200,000
Cost of Goods
Sold
170,000
115,000
(26)
7,000
278,000
Inventory
100,000
75,000
(26)
3,000
172,000
(26)10,000
590,000
An
An entry
entry isis required
required to
to eliminate
eliminate the
the
intercompany
intercompany upstream
upstreamsale
sale of
of inventory.
inventory.
Irwin/McGraw-Hill
7-34
©2001 by The McGraw-Hill Companies, Inc. All
Consolidated Net Income--20X1
PT Induk’s separate operating income
Rp140,000,000
PT Induk’s share of PT Anak’
income:
PT Anak’s net income
Rp50,000,000
Less: Unrealized intercompany
profit on upstream inventory sale
-3,000,000
PT Anak’ realized income
Rp47,000,000
PT Induk’s proportionate share
x .80
37,600,000
Consolidated net income, 20X1
Rp177,600,000
Irwin/McGraw-Hill
©2001 by The McGraw-Hill Companies, Inc. All
7-35
Basic Equity--Method Entries--20X2
7-36
(28) Investment in PT Anak
Stock
60,000,000
Income from Subsidiary
60,000,000
Record equity-method income.
Rp75,000,000
x .80
(27) Cash
32,000,000
Investment in PT Anak
Stock
32,000,000
Record dividends from PT Anak.
Rp75,000,000
x .80
Irwin/McGraw-Hill
©2001 by The McGraw-Hill Companies, Inc. All
Consolidation Workpaper--20X2 (in ‘000)
PT Induk
PT Anak
Item
Income from
Subsidiary
60,000
Dividends
Declared
(60,000)
Investment in
PT Anak
284,000
Eliminations
Debits
Credits
Consolidated
(29) 60,000
(40,000)
(29)
32,000
(29)
28,000
An
An entry
entry isis needed
needed to
to eliminate
eliminate the
the effects
effects
of
of income
income from
fromPT
PTAnak
Anak and
and from
fromPT
PT
Induk’s
Induk’s share
share of
of dividends.
dividends.
Irwin/McGraw-Hill
7-37
©2001 by The McGraw-Hill Companies, Inc. All
Consolidation Workpaper--20X2 (in ‘000)
PT Induk
PT Anak
Item
Income to
Noncontrolling
Interest
Dividends
Declared
(30)15,600
(60,000)
Noncontrolling
Interest
Eliminations
Debits
Credits
(40,000)
Consolidated
(15,600)
(30)
32,000
8,000
(30)
7,600
(29)
(60,000)
An
Anentry
entryisisneeded
neededto
toassign
assign the
thenoncontrolling
noncontrolling
shareholders
shareholderstheir
theirshare
shareof
ofincome
incomeand
andestablish
establishthe
the
20X2
20X2increase
increasein
inthe
theclaim
claimof
ofnoncontrolling
noncontrolling
shareholders
shareholderson
onthe
thenet
netassets
assetsof
ofPT
PTAnak.
Anak.
Irwin/McGraw-Hill
7-38
©2001 by The McGraw-Hill Companies, Inc. All
Consolidation Workpaper--20X2 (in ‘000)
PT Induk
PT Anak
Item
Retained Earnings,
January 1
420,000
Investment in
PT Anak
284,000
Common Stock
500,000
Noncontrolling
Interest
120,000
Eliminations
Debits
Credits
(31)120,000
Consolidated
420,000
28,000
(31)256,000
(29)
200,000
(31)200,000
500,000
(30)
(31)
7,600
64,000
AAworkpaper
workpaperentry
entryisisneeded
neededto
toeliminate
eliminatethe
thebeginning
beginning
stockholders’
stockholders’equity
equitybalances
balancesof
ofPT
PTAnak
Anakand
andPT
PT
Induk’s
Induk’sbeginning
beginninginvestment
investmentbalance.
balance.
Irwin/McGraw-Hill
7-39
©2001 by The McGraw-Hill Companies, Inc. All
Consolidation Workpaper--20X2 (in ‘000)
PT Induk
PT Anak
Item
Cost of Goods
Sold
180,000
160,000
Retained Earnings,
January 1
420,000
120,000
Noncontrolling
Interest
Eliminations
Debits
Credits
(32)
3,000
Consolidated
337,000
(31) 120,000
(32)
2,400
(32)
600
417,600
(30)
(31)
7,600
64,000
71,000
AAworkpaper
workpaperentry
entryisisneeded
neededto
toeliminate
eliminatethe
thebeginning
beginning
inventory
inventoryprofit:
profit: Rp3,000,000
Rp3,000,000xx.80
.80and
andRp3,000,000
Rp3,000,000xx
.20.
.20.
Irwin/McGraw-Hill
7-40
©2001 by The McGraw-Hill Companies, Inc. All
Consolidated Net Income--20X2
PT Induk’s separate operating income
Rp160,000,000
PT Induk’s share of PT Anak’
income:
PT Anak’s net income
Rp75,000,000
Realized intercompany profit
on upstream inventory sale
3,000,000
PT Anak’ realized income
Rp78,000,000
PT Induk’s proportionate share
x .80
62,400,000
Consolidated net income, 20X2
Rp222,400,000
Irwin/McGraw-Hill
©2001 by The McGraw-Hill Companies, Inc. All
7-41
7-42
Chapter Seven
The
End
Irwin/McGraw-Hill
©2001 by The McGraw-Hill Companies, Inc. All