Chapter 6 PPE - Topic Notes on groups PDF

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Summary

CONSOLIDATION JOURNALS 1. Sale of PPE within Group no sale to 3rd Party Dr Other income PPE Cr In subsequent years: Retained Earnings PPE Remove unrealized profit. Deferred Tax Income Tax Expense x x In subsequent years: Deferred Tax Retained Earnings x x Tax effect of eliminated unrealized profit. ...

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CONSOLIDATION JOURNALS 1. Sale of Non-Depreciable PPE within Group → no sale to 3rd Party Dr Other income PPE

Cr

xxx xxx In subsequent years:

Retained Earnings PPE

xxx xxx

Remove unrealized profit. Deferred Tax Income Tax Expense

x x

In subsequent years: Deferred Tax Retained Earnings

x x

Tax effect of eliminated unrealized profit.

2. Sale of Non-Depr. PPE within Group→ sold to 3rd Party same year :. profit realizes

NO JOURNAL

1

3. Sale of Non-Depr. PPE within Group→ sold to 3rd Party in subsequent yr

Dr Other income PPE

Cr

xxx xxx In subsequent years:

Retained Earnings PPE

xxx xxx

Remove unrealized profit. x Deferred Tax Income Tax Expense

x

In subsequent years: x Deferred Tax Retained Earnings

x

Tax effect of eliminated unrealized profit. PPE

xxx Other income

xxx

Unrealised profit realizes when sold to 3rd Party. Income Tax Expense Deferred Tax

x x

Tax effect of unrealized profit realizing on sale to 3rd P.

4. Sell Depreciable PPE → no sale to 3rd Party Dr PPE (CP – SP) Other income (SP – CA) Accumulated depreciation (balancing #) a Remove unrealized profit.

2

Cr

xx x xxx

Deferred Tax Income Tax Expense

x x

Tax effect of eliminated unrealized profit → 28%(SP-CA) Accumulated depreciation Depreciation b

xx xx

Reduce amt of dep recognised. Income Tax Expense Deferred Tax

x x

Tax effect of reduced depreciation. Above jnls in subsequent years: PPE (CP-SP) Retained Earnings (Other income – dep) Accumulated dep (Balancing #)

xx x

Deferred Tax Retained Earnings – Opening Bal

x

xxx

x

5. Sell Depreciable PPE → subsequent sale to 3rd Party Dr PPE (CP – SP) Other income (SP – CA) Accumulated depreciation (balancing #) a

Cr

xx x xxx

Remove unrealized profit. Deferred Tax Income Tax Expense

x x

Tax effect of eliminated unrealized profit → 28%(SP-CA) Accumulated depreciation Depreciation b

xx xx

Reduce amt of dep recognised. Income Tax Expense Deferred Tax

x x 3

Tax effect of reduced depreciation. Jnls in subsequent years: c

1

2

PPE (CP-SP) Retained Earnings (Other income – dep) Accumulated dep (Balancing #)

xx x

Deferred Tax Retained Earnings – Opening Bal

x

Accumulated dep Dep

x

Income Tax Exp Deferred Tax

x

xxx

x

x

x

PPE sold to 3rd Party: Accumulated dep (1-2) PPE (CP-SP) Other income (1-2) Unrealised profit realizes. Income Tax Expense Deferred Tax Tax effect of unrealized profit realizing.

6. Non-Depreciable PPE sold within the Group at a Loss Dr PPE

Cr

xxx Other Expenses

xxx

Remove unrealized loss. Income Tax Expense Deferred Tax

xx xx

Tax effect of eliminated unrealized loss.

4

7. PPE sold is Inventories for the Seller & PPE for the Buyer Dr Revenue (SP) Cost of Sales (CP) PPE (Profit)

Cr

xxx xxx

Reverse sale & remove unrealized profit. Deferred Tax Income Tax Expense

xx xx

Tax effect of eliminated unrealized profit.

8. Buyer uses Asset for Manufacturing Purposes → Depr goes to COS Dr Accumulated depreciation Cost of Sales

Cr

xx xx

Reduce amt of depreciation recognised. Income Tax Expense Deferred Tax

x x

Tax effect of reduced depreciation.

9. Asset is PPE for Seller & Inventory for Buyer   

No depreciation Group also treats the PPE as inventory If sold at a profit = intragroup:

Dr Other income Inventory

Cr

xx xx

Remove unrealized profit. Deferred Tax Income Tax Expense

x x 5

Tax effect of eliminated unrealized profit.



If sold to 3rd Party then reverse:

Dr Inventory Other income

Cr

xx xx

Realise unrealized profit. Income Tax Expense Deferred Tax

x x

Tax effect of realisation.

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