Module 2-Topic 5
Module 2-Topic 5
Module 2-Topic 5
VILLAMAR__
E-mail Address: _hazeljade.villamar@clsu2.edu.ph________
Module 2
Topic 5 (Intercompany Profit in Beginning
and Ending Inventories)
Overview
This course covers the concepts and application of the different standards
related to accounting for business combination. It involves techniques and
methodologies on how to deal properly with issues and problems involving
business combination that are likely to be encountered in practice and in the
National CPA Licensure Examination.
I. Objectives
At the end of the module, the following are expected to:
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ACCTG 2215 / Accounting for Business Combinations
Based on the foregoing analysis, the working paper elimination entries are required
for Sub’s intercompany sales of merchandise to Parent for the year ended December 31,
2020:
EE 1 Sales 15,000
Cost of goods sold 15,000
To eliminate intercompany sale of inventory.
Sub’s intercompany sales and cost of goods sold in prior year, 2020, had been closed
with other income accounts to Sub’s Retained Earnings account on December 31, 2020.
Therefore, from a consolidated point of view, Sub’s December 31, 2020 retained earnings
was overstated by P1,250 unrealized intercompany profit in Parent’s inventories on
December 31, 2020. Since NCI is considered to be a part of consolidated stockholders’
equity, then they are considered as part owners of consolidated assets. As such, their share
in intercompany profits in inventories were considered not realized.
Also, the unrealized profit included in Parent’s beginning inventories was charged to
cost of goods sold when Parent sold the inventory during the period. Thus, overstating the
cost of goods sold for 2021. EE 3 results in the reporting of beginning consolidated retained
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ACCTG 2215 / Accounting for Business Combinations
earnings and cost of goods sold for the year as if there had been no unrealized intercompany
profit at the beginning of the year.
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ACCTG 2215 / Accounting for Business Combinations
REFERENCES:
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