Intercompany Gain on Sale of Depreciable Plant Asset (Contd.)
Note: the elimination of the $23,800 gain should be taken into account in the minority interest in the net income of Sage (the seller) for year 2001. The $23,800 is also included in the Sage’s retained earnings, for consolidation purposes, on 12/31/2001 I (see textbook 376-378).
To eliminate unrealized intercompany gain in machinery and in related depreciation.(Income tax effects are disregarded.) Gain element in straight-line depreciation computed as $23,800 x 0.2 = $4,760,based on five-year economic life.
Intercompany Gain subsequent to Date of Sale of Depreciable Plant Asset (Contd.)
The elimination of the Post’s depreciation expense can also be verified as follows:
From the consolidation view point, the intercompany gain element of the acquiring affiliate’s annual depreciation expense represents a realization of a portion of the total intercompany gain by the selling affiliate .
Intercompany Gain in Depreciation and Minority Interest (Contd.)
Thus the $4,760 credit to Post’s depreciation expense in the 12/31/2001 working paper elimination increases Sage’s net income for consolidated purposes.
This increase must be considered in the computation of the minority interest in the subsidiary’s net income for the year ended 12/31/2002.