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Manuel Angelo M. PetalcorinAdbans2Ako nagbuhat sa PowerPoint. Ayaw nako i-agig ORAL kay wala gihapon ko matubag. Roxan Danica DizonJeasan SantosCharlene SampiloThe Last Amender! The Lami2x! The Warrior!

Karen RanalanNathaniel MaghinayJobert CarriagaThe Stuntman! UhhmUhmmmmPinakagwapo? (no)TISOY! Manuel Angelo M. PetalcorinAdbans2Ako nagbuhat sa PowerPoint. Ayaw nako i-agig ORAL kay wala ko matubag. Johanna FajardoReymon DiezNio BandicoThe Fajardo-get. The HEARTthrob! The Starboy

Intercompany transactions - InventoriesGroup 1ParentDownstreamUpstreamIntercompany transactionsSubsidiarySeparate Financial StatementsSeparate Financial StatementsConsolidated FinancialStatementGeneral OverviewWe are awesome!Adbans2Intercompany Sales

Adbans2At CostWhat we are talking about. Merchandise sometimes is sold to related affiliates at the seller's cost.The inventory amounts at the end of the period require no adjustment for consolidationAt time of sale to outsiders, the amount recognized as cost of goods sold by the affiliate making the outside sale is the cost to the consolidated entity.An eliminating entry is needed to remove the intercompany sale and the related cost of goods sold recorded by the seller.This avoids overstating these two accounts.Consolidated net income is not affected by the eliminating entry.Intercompany Sales

Adbans2At a Profit or LossWhat we are talking about. Companies usually mark up sale of inventory to affiliates by a certain percentage of cost.The elimination process must remove the effects of such sales from the consolidated statements.The working paper eliminations needed for consolidation in the period of sale have two goals:Elimination of the income statements effects of the intercompany sale in the period of sale, removing the sales revenue from the intercompany sale and the related COGS recorded by the selling affiliate.Elimination from the inventory on the SFP of any profit or loss on the intercompany sale that has not been confirmed or realized by resale of inventory to outsiders.Downstream Sale of InventoryAdbans2Downstream Sale of InventoryAdbans2Intercompany sale of merchandise from a parent company to its subsidiariesFor consolidation purposes, profits recorded on an intercompany inventory sale are realized in the period in which the inventory is resold to outsiders.Until the point of resale, all intercompany profits must be deferred.Consolidated net income must be based on the realized income of the selling affiliate. If the intercompany sales of merchandise are made by the parent company or by a wholly owned subsidiary, there is no effect on any NCI in net income or loss, because the selling affiliate does not have NCI.When a company sells merchandise to an affiliate, one of the two situation results:1. the merchandise is resold to outsiders during the same period2. the merchandise is resold to outsiders during the next period to unrealized profit in ending inventory.Resale in the year of Intercompany SaleAdbans2Sample ProblemOn April 1, 2010, Pete Corporation sold merchandise costing P8,000 to Sake Company for P10,000 or at a gross profit of 20% of sales. Assume further that on November 7,2010, Sake Company sells the merchandise to outsiders for P 15,000.

Parent and Subsidiary Companies entriesAdbans2Books of Pete Corporation2010April 1(1)Cash10,000Sales10,000To record sale of merchandise to Sake Co.(2)Cost of goods sold8,000Inventory8,000To record cost of inventory soldParent and Subsidiary Companies entriesAdbans2Books of Sake Company2010April 1(3)Inventory10,000Cash10,000To record purchase inventory from PeteNov. 7(4)Cash15,000Sales15,000To record sale of inventory to outsiders(5)Cost of goods sold10,000Inventory10,000To record cost of inventory sold to outliersParent and Subsidiary Companies entriesAdbans2Books of Sake CompanyItemPete CorporationSake CorporationUnadjusted BalancesConsolidated AmountsSales10000150002500015000COGS800010000180008000Gross Profit2000500070007000Working Paper Elimination EntriesAdbans2E (7) Sales10,000Cost of Goods Sold10,000To eliminate intercompany sale of inventoryResale in subsequent following Intercompany Sale: Unrealized Intercompany Profit in Ending Inventories

Adbans2Sample ProblemOn April 1, 2010, Pete Corporation sold merchandise costing P8,000 to Sake Company for P10,000 or at a gross profit of 20%, out of which P4,000 remained unsold by Sake Company on December 31,2010.Parent and Subsidiary Companies entriesAdbans2Books of Pete Corporation2010April 1(1)Cash10,000Sales10,000To record sale of merchandise to Sake Co.

(2)Cost of goods sold8,000Inventory8,000To record cost of inventory sold

Parent and Subsidiary Companies entriesAdbans2Books of Sake Company2010April 1(3)Inventory10,000Cash10,000To record purchase inventory from Pete

(6)Cash7,500Sales7,500To record sales to outsiders

(7)Cost of goods sold6,000Inventory6,000To record cost of goods soldParent and Subsidiary Companies entriesAdbans2Books of Sake CompanySelling PriceCostGross ProfitBeg. Invty---Add: SalesP10000P8000P2000TotalsP10000P8000P2000Less: Ending Invty40003200800COGSP6000P4800P1200Working Paper Elimination EntriesAdbans2E (8) Sales10,000Cost of Goods Sold10,000To eliminate intercompany sale of inventoryE (9) Cost of goods sold800Inventory800To eliminate intercompany sale of inventoryIntercompany Profit in Beginning and Ending InventoriesAdbans2Sample ProblemContinuing our illustration in the preceeding section, assume that during the year 2011, Pete sold again merchandise to Sake for P25,000 at a gross margin of 20%. Of this merchandise P6000 remains in the ending inventories of Sake on December 31, 2011.Parent and Subsidiary Companies entriesAdbans2Books of Sake CompanySelling PriceCostGross ProfitBeg. Invty40003200800Add: Sales25000200005000Totals29000232005800Less: Ending Invty600048001200COGS23000184004600Working Paper Elimination EntriesAdbans2E (10) Sales25,000Cost of Goods Sold25,000To eliminate intercompany sale of inventoryE (9) Cost of goods sold1200Inventory1200To eliminate unrealized inventory profitE (12)Retained Earnings. Jan.1- Pete800Cost of goods sold800To eliminate realized inventory profitComputation and Allocation of Consolidated Net IncomeAdbans2Pete's net income from own operations (excluding dividend income)P80,000Realized Profit in Beg.Invty (Downstream Sale) 800Unrealized profit in ending invty (downstream sale) (1,200)Pete's Realized net income from outsiders 79,600Sake's net income from own operations 50,000Consolidated Net Income129,600Attributable to NCI (50,000 x 20%) 10,000Attributable to parent shareholders119,600Upstream Sale of InventoryAdbans2UPSTREAM SALE OF INVENTORYAdbans2What we are talking about. Intercompany sales from subsidiaries to the parent companyWhen an upstream sale of inventory occurs and the inventory is resold by th parent to outsiders during the same period, all the parent entries and the eliminating entries in the consolidated working paper are identical to those in the downstream case.When the inventory is not resold to outsiders before the end of the period, working paper elimination entries are different from the downstream case only by the apportionment of the unrealized intercompany to both the controlling and NCI.The intercompany profit in an upstream sale is recognized by the subsidiary and shared between the controlling interest and NCI.Therefore, the elimination of the unrealized intercompany profit must reduse the interests of both ownership groups until the profit is realized by resale of the inventory to outsiders.Unrealized Intercompany Profit in Ending InventoriesAdbans2Sample ProblemAssume that Sake Company (an 80% owned subsidiary) during the year ended December 31,2010 sold merchandise to Pete Corporation at a gross margin of 20%. Sales by Sake to Pete for the year totaled P10,000 of which P4,000 remained unsold by Pete on December 31,2010.Parent and Subsidiary Companies entriesAdbans2Books of Sake Corporation2010April 1(1)Cash10,000Sales10,000To record sale of merchandise to Pete Co

(2)Cost of goods sold8,000Inventory8,000To record cost of inventory sold

Parent and Subsidiary Companies entriesAdbans2Books of Pete Corporation2010April 1(3)Inventory10,000Cash10,000To record purchase inventory from SakeNov. 7(4)Cash15,000Sales15,000To record sale of inventory to outsiders

(5)Cost of goods sold10,000Inventory10,000To record cost of inventory sold to outliersWorking Paper Elimination EntriesAdbans2E (7) Sales10,000Cost of Goods Sold10,000To eliminate intercompany sale of inventoryAdbans2NCI in Net Income of SubsidiarySake's net income (assumed)P 20,000Unrealized intercompany Profit in ending invty 800Sake's realized income 19,200NCI in net income of subsidiary (19,200 x 20%)P 3,840Consolidated Net IncomePete's net income (excluding dividend income)P50,000Sake's realized net income:Sake's net incomeP20,000Unrealized intercompany profit in ending invty (800) 19,200Consolidated net incomeP 69,200Attributable to NCI 3,840Attributable to parent shareholdersP 65,360

Unrealized Intercompany Profit in Ending InventoriesAdbans2Sample ProblemAssume that Sake Company (an 80% owned subsidiary) during the year ended December 31,2010 sold merchandise to Pete Corporation at a gross margin of 20%. Sales by Sake to Pete for the year totaled P10,000 of which P4,000 remained unsold by Pete on December 31,2010.Intercompany Profit in Beginning and Ending InventoriesAdbans2Sample ProblemOn April 1, 2010, Sake Corporation sold merchandise costing P8,000 to Pete Company for P10,000 or at a gross profit of 20% of sales. Assume further that on November 7,2010, Sake Company sells the merchandise to outsiders for P 15,000.Assume that during the year 2011, Sake sold again merchandise to Pete for P25,000 at a gross margin of 20%. Of this merchandise P6000 remains in the ending inventories of Pete on December 31, 2011.Working Paper Elimination EntriesAdbans2E (10) Sales25,000Cost of Goods Sold25,000To eliminate intercompany sale of inventoryE (9) Cost of goods sold1200Inventory1200To eliminate unrealized inventory profitE (12)Retained Earnings. Jan.1- Pete640NCI160Cost of goods sold800To eliminate realized inventory profitAdbans2NCI in Net Income of Subsidiary - 2011Sake Company net incomeP20,000Realized Profit in Beg.Invty 800Unrealized profit in ending invty (1,200)Sake's realized income 19,600NCI in net income of subsidiary (19,600 x 20%) P 3, 920Consolidated Net Income - 2011Pete's net income from own operationsP50,000Sake's realized net income:Sake's net incomeP20,000Realized profit in beg. Invty 800Unrealized profit in ending invty (1,200) 19,600Consolidated net income P 69,600Attributable to NCI 3,920Attributable to parent shareholdersP 65,680

Comprehensive IlustrationOn April 1, 2010, Pete Corporation sold merchandise costing P8,000 to Sake Company for P10,000 or at a gross profit of 20% of sales. Assume further that on November 7,2010, Sake Company sells the merchandise to outsiders costing 6,000 for 8,400.

Comprehensive IlustrationPete companySake Company

Beg inventory40,000.0035,000.00Purchases from outside100,000.0070,000.00Ending inventory20,000.0045,000.00The beginning inventory of Sake company includes 4,000 that was purchase last year from Pete Company.Requirements: For the December 31, 2010 compute the following.1. Consolidated Sales.2. Consolidated COGS.3. Consolidated net income.Thats all. Thank you very much! Any Questions?