Look Who it Was Random video

Elimination of intercompany sales of Depreciable assets | Cost Method | Advanced Accounting CPA Exam

3,244 views · Published 27 November 2018 · 26:02 · Indexed 25 October 2026

Channel: Farhat Lectures. The # 1 CPA & Accounting Courses · 2018 · Education

Watch on YouTube

How do you eliminate unrealized gains on intercompany depreciable asset sales under the cost method? In this advanced accounting lecture, Professor Farhat walks through the cost method consolidation entries for an upstream intercompany sale of a fixed asset, including establishing reciprocity, eliminating the unrealized gain, and handling subsequent-year and non-controlling interest adjustments. Essential FAR exam material for CPA candidates and accounting students.

Try it free at farhatlectures.com — interactive exercises, lectures, simulations, cases, multiple choice, and AI tools for CPA, CMA, EA and students.

Video Timeline & Key Concepts:
0:00 — Introduction
3:41 — Establishing reciprocity and updating the investment account
6:26 — Eliminating the unrealized gain on the intercompany asset sale
10:44 — Subsequent-year adjustments
15:20 — Non-controlling interest
22:11 — Proof of consolidated retained earnings

Frequently Asked Questions:

What is the cost method in consolidation?

Under the cost method, the parent does not update its investment account for the subsidiarys earnings during the year, so a reciprocity entry is needed to bring the investment account and retained earnings up to date before eliminations.

How is the unrealized gain on an intercompany asset sale eliminated?

The unrealized gain is removed and the asset and its accumulated depreciation are restored to their original consolidated values, as if the intercompany sale had never happened.

Why are subsequent-year adjustments needed?

In later years the gain must be eliminated from beginning retained earnings and depreciation must continue to be adjusted, gradually recognizing the deferred gain as the asset is used.

How does non-controlling interest factor in?

For an upstream sale, the unrealized gain relates to the subsidiary, so the non-controlling interest share of the subsidiarys income and equity must reflect the elimination adjustments.

Is this tested on the CPA exam?

Yes. Intercompany asset eliminations under the cost method are tested in the FAR section as part of advanced accounting.

#CPAexam #CMAexam #enrolledagentexam #accountingcourses #collegecourses #courses #FAR #consolidation #costmethod #intercompany #advancedaccounting #ProfessorFarhat

More from this channel