Intercompany Sales of Property, Plant & Equipment at its historical cost.

Intercompany gains and losses resulting from intercompany sales of PPE are to be eliminated Working Paper Elimination Entry
(deferred) in preparing consolidated financial statements. Unrealized gains or losses on PPE
affect the financial statements until the related PPE are sold to outsiders or are exhausted Gain on sale of l 75,000.00
through use by the purchasing affiliate. Land 75,000.00
To eliminate unrealized gain on sale of land
INTERCOMPANY GAIN ON SALE OF NON-DEPRECIABLE ASSETS
Assignment of Unrealized Profit Elimination
When land is sold between affiliated at book value, no special adjustments or eliminations
are needed in preparing the consolidated statements. If a company sells to a subsidiary Type of Sale Elimination
a land costing P100,000 fo also P100,000, the land continues to be valued at the
P100,000 original cost to the consolidated entity. Downstream - Parent to subsidiary Against controlling interest

Parent Subsidiary Upstream - subsidiary to Parent

-wholly owned subsidiary Against controlling interest
Cash 100,000.00 Land 100,000.00 -partially owned subsidiary Proportionately against controlling
Land 100,000.00 Cash 100,000.00 and non-controlling interests

Intercompany sale of land at a gain requires adjustments or eliminations in the consolidation process. ILLUSTRATION
The selling entity's gain must be eliminated because the land is still held by the consolidated entity, and no gain
may be reported until the land is sold to outsiders. Assume that Peter Corporation owns 80% of the common stock of Saber Corporation.
The companies report the following comprehensive income (CI) from their own operations:

Illistration Peter Corporation 500,000.00

Assume that on July 1, 2020 Peter Corporation sold land costing P100,000 to its subsidiary, Saber Corporation Saber Corporation 300,000.00
for P175,000.
Assuming unrealized gain from intercompany sale of PPE was included in the CI.
Peter records the sale of land to Saber with the following entry:
Computation of Consolidated CI if downstream sale:
July 1, 2020
Cash 175,000.00 Peter's CI from own operations 500,000.00
Land 100,000.00 Unrealized intercompany gain (downstream sale) - 50,000.00
Gain on sale of land 75,000.00 Peter's realized CI 450,000.00
To record sale of land to Saber Corporation Saber's CI from own operations 300,000.00
Consolidated CI 750,000.00
Saber records the purchase of land from Peter Corporation as follows: Attributable to NCI (P300,000*20%) 60,000.00
Attributable to parent (controlling interest) 690,000.00
July 1, 2020
Computation of Consolidated CI if upstream sale:
Land 175,000.00
Cash 175,000.00 Peter's CI from own operations 500,000.00
To record purchase of land from Peter Saber's CI from own operations 300,000.00
Unrealized intercompany gain (upstream sale) - 50,000.00 250,000.00
The gain shall not be reported in the consolidated statements and the Land must be reported Consolidated CI 750,000.00

Attributable to NCI (P250,000*20%) 50,000.00 Gain recognized by Pete on the intercompany sale of equipment is:
Attributable to parent (controlling interest) 700,000.00 Sales price of the equipment 70,000.00
Book value 63,000.00
Subsequent Disposition of Asset Gain on sale of equipment 7,000.00

If for example Saber Corporation sold the land purchased from Peter Corporation for P225,000 to outsiders Books of Saber Corporation
the following year, the gain on sale to outsiders will be P50,000, but on the consolidated viewpoint, December 31, 2020
the total gain must be P125,000 (P225,000 - P150,000).
Equipment 70,000.00
Since the asset from intercompany sale has been sold, therefore, the gain unrealized must now be recognized Cash 70,000.00
as gain in the books of Peter, however, in the consolidation, it will be eliminated through a debit to To record the purchase of equipment from Peter.
Retained earnings, beg. Thus, the working paper eliminatio entry shall be:
Saber does not depreciate the equipment during 2016 because the equipment is purchased at the very end
DOWNSTREAM SALE of 2010. Peter must record the depreciation fro 2020 because it held the asset until the end of the year.

Retained earnings, Jan 1 75,000.00 Books of Peter Corporation:

Gain on sale of land 75,000.00 December 31, 2020

UPSTREAM SALE Depreciation 9,000.00

Accumulated depreciation 9,000.00
Retained earnings, Jan 1 60,000.00 To record 2020 depreciation expense
NCI 15,000.00
Gain on sale of land 75,000.00 Cash 70,000.00
Accumulated depreciation 27,000.00
Equipment 90,000.00
INTERCOMPANY SALE INVOLVING DEPRECIABLE PPE Gain on sale of equipment 7,000.00
To record the sale of equipment to Saber
Unrealized intercompany gains on a depreciable PPE are viewed as being realized gradually over the remaining
life of the asset as it is used by the purchasing affiliate. In effect, a portion of the unrealized gain is realized each FIRST YEAR AFTER ACQUISITION
period as benefits are derived from the asset.
Assume that on January 2, 2020, Peter Corporation purchases 80% of the common stock of Saber Company
ILLUSTRATION for P240,000.00. Assume also that the above intercompany sale of PPE happened on the same year when the acquisition
happened. The following D&A schedule was prepared on the date of acquisition.
DOWNSTREAM SALE
Assume that Peter sells equipment to Saber on December 31, 2020, for P70,000. The equipment originally cost Parent NCI at FV
Peter P90,000 when purchased three years before December 31, 2020, and is being depreciated over a total life Total Price (80%) (20%)
of 10 years using the straight-line method with no residual value. The book value of the equipment immediately Fair value of subsidiary 300,000.00 240,000.00 60,000.00
before the sale by Peter is computed below: Less book value of interest acquired
Common stock - S Company 200,000.00
Original cost to Peter 90,000.00 Retained earnings - S Company 100,000.00
Accumulated depreciation on December 31, 2020: Total 300,000.00 300,000.00 300,000.00
Annual depreciation (P90,000/10years) 9,000.00 Interest acquired 80% 20%
Multiply by number of years 3 27,000.00 Book Value 240,000.00 60,000.00
Book value, December 31, 2020 63,000.00 Excess - - -
Peter Corporation would record its investment in Saber Company stock, and the receipt of dividends
from Saber Company as follows: E4 Machinery and equipment 20,000.00
Gain on sale of equipment 7,000.00
2020 Accumulated depreciation 27,000.00
Jan. 2 Investment in Saber Company 240,000.00 To eliminate unrealized gain on downstream sale
Cash 240,000.00 of equipment
To record the purchase of Saber Company stock.
ANALYSIS Amounts from Consolidated
Dec. 31 Cash 24,000.00 Trial balances Elimination Amounts
Dividend income 24,000.00 Machinery and equipment 70,000.00 20,000.00 90,000.00
To record the purchase of Saber Company stock. Accumulated depreciation - - 27,000.00 - 27,000.00
Gain on sale of equipment - 7,000.00 - 7,000.00 -
Account balances related to Investment in Saber Company
Peter Corporation and Subsidiary
Investment in Saber Company 240,000.00 Working Paper for Consolidated Financial Statements
Dividend income 24,000.00 Year Ended December 31, 2020 - First Year

Peter Saber Eliminations Consolidated

Working Paper Elimination Entries Corporation Company Debit Credit FS
Statement of CI
E1 Dividend income (80%) 24,000.00 Sales 400,000.00 200,000.00 600,000.00
NCI (20%) 6,000.00 Gain on sale of equipment 7,000.00 7,000.00
Dividend declared 30,000.00 Dividend income 24,000.00 24,000.00 -
To eliminate intercompany dividends Total revenue 431,000.00 200,000.00 600,000.00
Cost of goods sold 170,000.00 115,000.00 285,000.00
E2 Common stock 200,000.00 Operating expenses 50,000.00 20,000.00 70,000.00
Retained earnings 100,000.00 Other expenses 40,000.00 15,000.00 55,000.00
Investment in Saber Company 240,000.00 Total costs and expenses 260,000.00 150,000.00 410,000.00
NCI 60,000.00 Net/consolidated income 171,000.00 50,000.00 190,000.00
To eliminate investment and equity accounts at the date NCI in CI of subsidiary 10,000.00 - 10,000.00
of acquisition and establish minority interest in net assets of CI to RE 171,000.00 50,000.00 180,000.00
subsidiary.
Statement of Retained Earnings
E3 NCI in CI of subsidiary 10,000.00 Retained earnings, January 1
NCI 10,000.00 Peter Corporation 300,000.00 300,000.00
To recognize NCI in subsidiary's net income Saber Company 100,000.00 100,000.00 -
for the year 2020. (P50,000*20%) CI from above 171,000.00 50,000.00 180,000.00
Total 471,000.00 150,000.00 480,000.00
An additional debit to Machinery and equipment was done to bring back its
historical amount and the related accumulated depreciation in the consolidation viewpoint. Dividends declared
Also, the entry also eliminates the gain on sale. Peter Corporation - 60,000.00 - 60,000.00
Saber Company - 30,000.00 30,000.00 -
Retained earnings, December 31
Carried forward 411,000.00 120,000.00 420,000.00

Statement of FP Consolidated Working Paper - 2021

Cash 277,300.00 68,000.00 345,300.00
Accounts Receivable 75,000.00 50,000.00 125,000.00 E1 Dividend income (80%) 32,000.00
Inventory 100,000.00 75,000.00 175,000.00 NCI (20%) 8,000.00
Land 175,000.00 40,000.00 215,000.00 Dividend declared 40,000.00
Property and Equipment 791,000.00 607,000.00 20,000.00 1,418,000.00 To eliminate intercompany dividends
Investment in Saber Company 240,000.00 - 240,000.00 -
Total Assets 1,658,300.00 840,000.00 2,278,300.00 E2 Common stock 200,000.00
Retained earnings 100,000.00
Accumulated depreciation 447,300.00 320,000.00 767,300.00 Investment in Saber Company 240,000.00
Accounts payable 100,000.00 100,000.00 27,000.00 227,000.00 NCI 60,000.00
Bonds payable 200,000.00 100,000.00 300,000.00 To eliminate investment and equity accounts at the date
Common stock: of acquisition and establish minority interest in net assets of
Peter Corporation 500,000.00 500,000.00 subsidiary.
Saber Company 200,000.00 200,000.00 -
Retained earnings, from above 411,000.00 120,000.00 420,000.00 E3 NCI in CI of subsidiary 14,800.00
NCI 14,800.00
NCI 60,000.00
To recognize NCI in subsidiary's net income
6,000.00 10,000.00 64,000.00
for the year 2021. (P74,000*20%)
Total liabilities and equity 1,658,300.00 840,000.00 367,000.00 367,000.00 2,278,300.00
E4 Retained earnings - Jan. 1 - Saber 4,000.00
NCI 4,000.00
Separate Company Entries - 2021 To assign undistributed prior earnings of Saber to NCI
(P50,000 - 30,000) *20%
Books of Saber Corporation
E5 Machinery and equipment 20,000.00
During 2021, Saber will begin depreciating the P70,000 cost of the equipment purchased from Peter Retained Earnings, Jan. 1 - Peter 7,000.00
over its remaining life of seven years using the straight line method. The depreciation of P10,000 per year Accumulated depreciation 27,000.00
(P70,000/7years) is recorded as follows by Saber: To eliminate unrealized gain on downstream sale
of equipment
Depreciation 10,000.00
Accumulated depreciation 10,000.00 E6 Accumulated depreciation 1,000.00
To record 2021 depreciation expense Depreciation 1,000.00
To eliminate excess depreciation.
This amount is P1,000 more per year than the depreciation that would have been recorded each year by Peter
if there is no intercompany sale. This entry increases consolidated CI by P1,000, the excess of Saber's recorded depreciation
of P10,000 over P9,000 recorded depreciation of Peter.
Books of Peter Corporation
Peter records its share of Saber's dividends for 2021 of P40,000 using normal cost method as follows: Peter Corporation and Subsidiary
Working Paper for Consolidated Financial Statements
Cash 32,000.00 Year Ended December 31, 2021 - Second Year
Dividend Income 32,000.00
To record dividends from Saber (P40,000 * 80%) Peter Saber Eliminations Consolidated

Corporation Company Debit Credit FS

Statement of CI
Sales 450,000.00 300,000.00 750,000.00 CONSOLIDATION IN SUBSEQUENT YEARS
Dividend income 32,000.00 32,000.00 - As long as Saber continues ro hold and depreciate the equipment, elimintation procedures must include:
Total revenue 482,000.00 300,000.00 750,000.00 1. Restating the equipment and accumulated depreciation balances.
Cost of goods sold 180,000.00 160,000.00 340,000.00 2. Eliminating the excess depreciation for the year.
Operating expenses 51,000.00 21,000.00 1,000.00 71,000.00 3. Reducing beginning retained earnings by the amount of the unrealized intercompany gain at the
Other expenses 60,000.00 45,000.00 105,000.00 beginning of the year.
Total costs and expenses 291,000.00 226,000.00 516,000.00
Net/consolidated income 191,000.00 74,000.00 234,000.00 Therefore, consolidation working paper for 2022 for Peter and Saber Corporation are as follows:
NCI in CI of subsidiary 14,800.00 - 14,800.00
CI to RE 191,000.00 74,000.00 219,200.00 Machinery and equipment 20,000.00
Retained Earnings, Jan. 1 - Peter 6,000.00
Statement of Retained Earnings Accumulated depreciation 26,000.00
Retained earnings, January 1 411,000.00 120,000.00 100,000.00 420,000.00 To eliminate unrealized gain on downstream sale
4,000.00 of equipment
7,000.00
CI from above 191,000.00 74,000.00 219,200.00 An additional P1,000 of the intercompany gain has been considered realized by the end of 2021
Total 602,000.00 194,000.00 639,200.00 that's why the gain on sale eliminated was reduced to P6,000 through a debit to Retained Earnings

Dividends declared - 60,000.00 - 40,000.00 40,000.00 - 60,000.00 Also, the credit to accumulated depreciation is lower than 2021 because Saber recorded P1,000 depreciation
Retained earnings, December 31 more than what is appropriate in the consolidation viewpoint.
Carried forward 542,000.00 154,000.00 579,200.00
Accumulated depreciation 1,000.00
Statement of FP Depreciation 1,000.00
Cash 302,400.00 78,000.00 380,400.00 To eliminate excess depreciation.
Accounts Receivable 150,000.00 80,000.00 230,000.00
Inventory 180,000.00 90,000.00 270,000.00 The analysis would be as follows:
Land 175,000.00 40,000.00 215,000.00
Property and Equipment 791,000.00 607,000.00 20,000.00 1,418,000.00 Accumulated depreciation based on book value as of
Investment in Saber Company 240,000.00 - 240,000.00 - December 31, 2021 [(P90,000/10)*4 years)] 36,000.00
Total Assets 1,838,400.00 895,000.00 2,513,400.00 Accumulated depreciation recorded by Saber as of
December 31, 2021 [(P70,000/7)* 1year)] - 10,000.00
Accumulated depreciation 496,400.00 341,000.00 1,000.00 27,000.00 863,400.00 Working paper adjustment/elimination 26,000.00
Accounts payable 100,000.00 100,000.00 200,000.00
Bonds payable 200,000.00 100,000.00 300,000.00 UPSTREAM SALE
Common stock: Assume that Saber sells equipment to Peter on December 31, 2020, for P70,000. The equipment originally cost
Peter Corporation 500,000.00 200,000.00 200,000.00 500,000.00 Ssber P90,000 when purchased three years before December 31, 2020, and is being depreciated over a total life
Retained earnings, from above 542,000.00 154,000.00 579,200.00 of 10 years using the straight-line method with no residual value. The book value of the equipment immediately
14,800.00 before the sale by Saber is computed below:
NCI 60,000.00
8,000.00 4,000.00 70,800.00 Original cost to Saber 90,000.00
Total liabilities and equity 1,838,400.00 895,000.00 386,800.00 386,800.00 2,513,400.00 Accumulated depreciation on December 31, 2020:
Annual depreciation (P90,000/10years) 9,000.00
Multiply by number of years 3 27,000.00
Book value, December 31, 2020 63,000.00
Saber reported total income P57,000 including the P7,000 gain on the sale of equipment.

To eliminate intercompany dividends

Books of Saber Corporation: E2 Common stock 200,000.00

December 31, 2020 Retained earnings 100,000.00
Investment in Saber Company 240,000.00
Depreciation 9,000.00 NCI 60,000.00
Accumulated depreciation 9,000.00 To eliminate investment and equity accounts at the date
To record 2020 depreciation expense of acquisition and establish minority interest in net assets of
subsidiary.
Cash 70,000.00
Accumulated depreciation 27,000.00 E3 NCI in CI of subsidiary 10,000.00
Equipment 90,000.00 NCI 10,000.00
Gain on sale of equipment 7,000.00 To recognize NCI in subsidiary's net income
To record the sale of equipment to Peter for the year 2020.
Saber's CI 57,000.00
Books of Peter Corporation Unrealized gain - 7,000.00
December 31, 2020 Adjusted Saber's CI 50,000.00
NCI share 20%
Equipment 70,000.00 NCI in CI of subsidiary 10,000.00
Cash 70,000.00
To record the purchase of equipment from Saber. E4 Machinery and equipment 20,000.00
Gain on sale of equipment 7,000.00
Peter Corporation would record its investment in Saber Company stock, and the receipt of dividends Accumulated depreciation 27,000.00
from Saber Company as follows: To eliminate unrealized gain on upstream sale
of equipment
2020
Jan. 2 Investment in Saber Company 240,000.00
Peter Corporation and Subsidiary
Cash 240,000.00 Working Paper for Consolidated Financial Statements
To record the purchase of Saber Company stock. Year Ended December 31, 2020 - First Year

Dec. 31 Cash 24,000.00 Peter Saber Eliminations Consolidated

Dividend income 24,000.00 Corporation Company Debit Credit FS
To record the purchase of Saber Company stock. Statement of CI
Sales 400,000.00 200,000.00 600,000.00
Account balances related to Investment in Saber Company Gain on sale of equipment 7,000.00 7,000.00
Dividend income 24,000.00 24,000.00 -
Investment in Saber Company 240,000.00 Total revenue 424,000.00 207,000.00 600,000.00
Dividend income 24,000.00 Cost of goods sold 170,000.00 115,000.00 285,000.00
Operating expenses 50,000.00 20,000.00 70,000.00
Other expenses 40,000.00 15,000.00 55,000.00
Working Paper Elimination Entries Total costs and expenses 260,000.00 150,000.00 410,000.00
Net/consolidated income 164,000.00 57,000.00 190,000.00
E1 Dividend income (80%) 24,000.00 NCI in CI of subsidiary 10,000.00 - 10,000.00
NCI (20%) 6,000.00 CI to RE 164,000.00 57,000.00 180,000.00
Dividend declared 30,000.00
Statement of Retained Earnings
Retained earnings, January 1 Cash 32,000.00
Peter Corporation 300,000.00 300,000.00 Dividend Income 32,000.00
Saber Company 100,000.00 100,000.00 - To record dividends from Saber (P40,000 * 80%)
CI from above 164,000.00 57,000.00 180,000.00
Total 464,000.00 157,000.00 480,000.00 Consolidated Working Paper - 2021

Dividends declared E1 Dividend income (80%) 32,000.00

Peter Corporation - 60,000.00 - 60,000.00 NCI (20%) 8,000.00
Saber Company - 30,000.00 30,000.00 - Dividend declared 40,000.00
Retained earnings, December 31 To eliminate intercompany dividends
Carried forward 404,000.00 127,000.00 420,000.00
E2 Common stock 200,000.00
Statement of FP Retained earnings 100,000.00
Cash 257,000.00 88,300.00 345,300.00 Investment in Saber Company 240,000.00
Accounts Receivable 75,000.00 50,000.00 125,000.00 NCI 60,000.00
Inventory 100,000.00 75,000.00 175,000.00
To eliminate investment and equity accounts at the date
Land 175,000.00 40,000.00 215,000.00
of acquisition and establish minority interest in net assets of
Property and Equipment 807,000.00 591,000.00 20,000.00 1,418,000.00
subsidiary.
Investment in Saber Company 240,000.00 - 240,000.00 -
Total Assets 1,654,000.00 844,300.00 2,278,300.00
E3 NCI in CI of subsidiary 15,380.00
NCI 15,380.00
Accumulated depreciation 450,000.00 317,300.00 27,000.00 794,300.00
To recognize NCI in subsidiary's net income
Accounts payable 100,000.00 100,000.00 200,000.00
for the year 2021.
Bonds payable 200,000.00 100,000.00 300,000.00 Saber's CI 75,900.00
Common stock: Realized gain 1,000.00
Peter Corporation 500,000.00 500,000.00
Adjusted Saber's CI 76,900.00
Saber Company 200,000.00 200,000.00 -
NCI share 20%
Retained earnings, from above 404,000.00 127,000.00 420,000.00 NCI in CI of subsidiary 15,380.00

NCI 60,000.00 E4 Retained earnings - Jan. 1 - Saber 5,400.00

6,000.00 10,000.00 64,000.00 NCI 5,400.00
Total liabilities and equity 1,654,000.00 844,300.00 367,000.00 367,000.00 2,278,300.00 To assign undistributed prior earnings of Saber to NCI
(P127,000 - 100,000) *20%
Separate Company Entries - 2021
E5 Machinery and equipment 20,000.00
Books of Peter Corporation Retained Earnings, Jan. 1 - Peter 5,600.00
NCI 1,400.00
During 2021, Peter will begin depreciating the P70,000 cost of the equipment purchased from Saber Accumulated depreciation 27,000.00
over its remaining life of seven years using the straight line method. The depreciation of P10,000 per year To eliminate unrealized gain on upstream sale
(P70,000/7years) is recorded as follows by Peter: of equipment

Depreciation 10,000.00 E6 Accumulated depreciation 1,000.00

Accumulated depreciation 10,000.00 Depreciation 1,000.00
To record 2021 depreciation expense To eliminate excess depreciation.

Retained earnings, from above 535,000.00 162,900.00 580,520.00

15,380.00
Peter Corporation and Subsidiary NCI 1,400.00 60,000.00
Working Paper for Consolidated Financial Statements 8,000.00 5,400.00 71,380.00
Year Ended December 31, 2021 - Second Year Total liabilities and equity 1,836,000.00 899,300.00 388,780.00 388,780.00 2,515,300.00

Peter Saber Eliminations Consolidated

Corporation Company Debit Credit FS
Statement of CI
Sales 450,000.00 300,000.00 750,000.00
Dividend income 32,000.00 32,000.00 -
Total revenue 482,000.00 300,000.00 750,000.00
Cost of goods sold 180,000.00 160,000.00 340,000.00
Operating expenses 51,000.00 19,100.00 1,000.00 69,100.00
Other expenses 60,000.00 45,000.00 105,000.00
Total costs and expenses 291,000.00 224,100.00 514,100.00
Net/consolidated income 191,000.00 75,900.00 235,900.00
NCI in CI of subsidiary 15,380.00 - 15,380.00
CI to RE 191,000.00 75,900.00 220,520.00

Statement of Retained Earnings

Retained earnings, January 1 404,000.00 127,000.00 100,000.00 420,000.00
5,400.00
5,600.00
CI from above 191,000.00 75,900.00 220,520.00
Total 595,000.00 202,900.00 640,520.00

Dividends declared - 60,000.00 - 40,000.00 40,000.00 - 60,000.00

Retained earnings, December 31
Carried forward 535,000.00 162,900.00 580,520.00

Statement of FP
Cash 284,000.00 98,300.00 382,300.00
Accounts Receivable 150,000.00 80,000.00 230,000.00
Inventory 180,000.00 90,000.00 270,000.00
Land 175,000.00 40,000.00 215,000.00
Property and Equipment 807,000.00 591,000.00 20,000.00 1,418,000.00
Investment in Saber Company 240,000.00 - 240,000.00 -
Total Assets 1,836,000.00 899,300.00 2,515,300.00

Accumulated depreciation 501,000.00 336,400.00 1,000.00 27,000.00 863,400.00

Accounts payable 100,000.00 100,000.00 200,000.00
Bonds payable 200,000.00 100,000.00 300,000.00
Common stock:
Peter Corporation 500,000.00 200,000.00 200,000.00 500,000.00