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INTERCOMPANY INVENTORY TRANSFERS

INTERCOMPANY INVENTORY TRANSFERS. Inventory Transfers: A Point to Remember. Intercompany Sales and Intercompany Cost of Sales accounts are eliminated only in years in which intercompany sales occur. Inventory Transfers: The Three Procedural Methods.

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INTERCOMPANY INVENTORY TRANSFERS

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  1. INTERCOMPANY INVENTORY TRANSFERS

  2. Inventory Transfers: A Point to Remember • Intercompany Sales and Intercompany Cost of Sales accounts are eliminated only in years in which intercompany sales occur.

  3. Inventory Transfers: The Three Procedural Methods • MODULE 1: The Complete Equity Method: • Unrealized profit is deferred in the selling entity’s general ledger. • MODULE 2: The Partial Equity Method: • Unrealized profit is deferred in the consolidation process. • MODULE 3: The Cost Method: • Unrealized profit is deferred in the consolidation process.

  4. Miscellaneous:Lower-of-Cost-or-Market Adjustments • For consolidated reporting purposes, the appropriate valuation of intercompany- acquired inventory is: • The lower of: • (1) the selling entity’s cost or (2) the market value.

  5. Miscellaneous: Partial Ownerships--Reporting to the NCI Shareholders • Under existing GAAP, a partially owned subsidiary: • Need not defer any of its unrealized intercompany gross profit in reporting to its NCI shareholders.

  6. Review Question #1 • For 2001, Paxco reported $60,000 of intercompany sales (25% markup on cost and fully paid for by Y/E) to Saxco, which reported $20,000 of intercompany acquired inventory at 12/31/01. The unrealized profit at 12/31/01 is:A. $ -0- B. $4,000 C. $5,000 D. $20,000 E. None of the above.

  7. Review Question #1--With Answer • For 2001, Paxco reported $60,000 of intercompany sales (25% markup on cost and fully paid for by Y/E) to Saxco, which reported $20,000 of intercompany acquired inventory at 12/31/01. The unrealized profit at 12/31/01 is:A. $ -0- B. $4,000 (20% of $20,000 Y/E inventory) C. $5,000 D. $20,000 E. None of the above.

  8. Review Question #2 • For 2001, Punco reported intercompany cost of sales of $1,600,000 (markup is 20% of transfer price) to Sunco, which reported $600,000 of intercompany acquired inventory at 12/31/01. The unrealized profit at 12/31/01 is:A. $80,000 B. $96,000 C. $120,000 D. $150,000 E. None of the above.

  9. Review Question #2--With Answer • For 2001, Punco reported intercompany cost of sales of $1,600,000 (markup is 20% of transfer price) to Sunco, which reported $600,000 of intercompany acquired inventory at 12/31/01. The unrealized profit at 12/31/01 is:A. $80,000 B. $96,000 C. $120,000 (20% of $600,000 Y/E inventory)D. $150,000 E. None of the above.

  10. Review Question #3 • For 2001, Salco (80% owned by Palco) reported $800,000 of intercompany sales (1/3 markup on cost) to Palco, which resold $700,000 of this inventory by 12/31/01. The unrealized profit at 12/31/01 is:A. $20,000 B. $25,000 C. $26,667 D. $33,333 E. None of the above.

  11. Review Question #3--With Answer • For 2001, Salco (80% owned by Palco) reported $800,000 of intercompany sales (1/3 markup on cost) to Palco, which resold $700,000 of this inventory by 12/31/01. The unrealized profit at 12/31/01 is:A. $20,000 B. $25,000 (25% x $100,000 inventory on hand) C. $26,667 D. $33,333 E. None of the above.

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