Elimination of intercompany sales of Depreciable Assets | Equity Method | Advanced Accounting
4,552 views · Published 28 November 2018 · 27:38 · Indexed 2 October 2026
Channel: Farhat Lectures. The # 1 CPA & Accounting Courses · 2018 · Education
How do you eliminate unrealized gains on intercompany sales of depreciable assets? In this advanced accounting lecture, Professor Farhat walks through eliminating unrealized gains on the intercompany sale of a fixed asset using the equity method, focusing on an upstream sale where a subsidiary sells equipment to its parent. CPA candidates and accounting students will learn the consolidation and depreciation adjustments — key FAR exam material. 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 0:03 — Consolidation adjustments: income, dividends, and investment account 8:37 — Eliminating unrealized gains on the fixed asset sale 15:21 — Depreciation adjustments 21:46 — Non-controlling interest 22:45 — Assembling the consolidated financial statements Frequently Asked Questions: What is an upstream sale of a depreciable asset? An upstream sale occurs when a subsidiary sells a fixed asset to its parent company. Any gain on that sale is unrealized from the consolidated perspective and must be eliminated until the asset is used or sold outside the group. How is the unrealized gain eliminated? The intercompany gain is removed, the equipment is adjusted back to its original affiliated cost, and accumulated depreciation is restored so the asset is reported as if the intercompany sale never occurred. Why must depreciation be adjusted? Depreciation expense must be adjusted because the buyer records depreciation on the inflated intercompany price. The adjustment brings depreciation back to the amount based on the original cost. How does non-controlling interest factor in? For an upstream sale, the unrealized gain affects the subsidiary, so the non-controlling interest share of the subsidiarys equity and income must reflect the elimination adjustments. Is this tested on the CPA exam? Yes. Intercompany asset eliminations are tested in the FAR section as part of advanced accounting and consolidations. #CPAexam #CMAexam #enrolledagentexam #accountingcourses #collegecourses #courses #FAR #consolidation #intercompany #equitymethod #advancedaccounting #ProfessorFarhat
