PAZ AFAR4 Report Merged

INTERCOMPANY SALES OF
PROPERTY, PLANT AND

EQUIPMENT
REPORTERS: Natividad, Pagdilao and Paz
CONTENTS OF THIS REPORT
• Introduction to Intercompany Sales of Property Plant and Equipment

• Intercompany Sale of Non-Depreciable Asset
• Intercompany Sale of Depreciable Fixed Asset – Downstream Sale
• Intercompany Sale of Depreciable Fixed Asset – Upstream Sale
Introduction of
Intercompany Sales of
Property, Plant and
Equipment
Difference Between Intercompany Sales of
Fixed Asset to Inventories / Merchandise
Transaction Intercompany
Profit
Inventories – more liquid, hence easily
Inventories – Usual Transactions realized
Fixed Assets / PPE – Unusual Transactions Fixed Assets / PPE – long EUL makes
profit / loss long before it can be realized
Different Asset types
Non-Depreciable Assets Depreciable Assets
- Land - Any other fixed asset

Two types of Intercompany sale
Downstream Sale Upstream Sale

The parent sells PPE The subsidiary sells
to the subsidiary PPE to the parent
“What is mine is mine alone” “What is yours is ours”

Parent (Investor)
Downstream Upstream
Subsidiary (investee)
Intercompany Sales of
Non-Depreciable Fixed
Asset
Intercompany sale process of land.
• A series of transaction:
(1) land purchased by Parent company from an unrelated party,
(2) land sold to a subsidiary of Parent Company, and
(3) land sold by subsidiary to an unrelated party:
• Details of transactions:
T1 – purchase by Parent Company from an outsider for $10,000
T2 – Sale from Parent Company to Subsidiary for $15,000
T3 – Sale from Subsidiary to an outsider for $25,000
• The amount of gain reported by each company and by the
consolidated entity in a periods depends on the transactions occur
during a period.
Case A All three transactions are completed in the same
accounting period.
Parent $ 5,000 (15,000 – 10,000)

Company
Subsidiary 10,000 (25,000 – 15,000)
Company
Consolidated 15,000 (25,000 – 10,000)
Entity
Case B Only transaction T1 is completed during the
current period.
Parent $0
Company
Subsidiary 0
Company
Consolidated 0
Entity
Case C Transaction T1 and T2 are completed during
the current period.
Parent $ 5,000 (15,000 – 10,000)

Company
Subsidiary
Company
Consolidated
Entity
Case D Only transaction T3 is completed during the
current period, T1 and T2 occurred in a prior
period.
Parent $0
Company
Subsidiary 10,000 (25,000 – 15,000)
Company
Consolidated 15,000 (25,000 – 10,000)
Entity
SUMMARY OF GAAP REQUIREMENT FOR
PREPARING CONSOLIDATED STATEMENT
1. All intercompany transactions must be eliminated in consolidation

2. The full amount of unrealized intercompany profit is eliminated
3. The deferral is shared with Non-Controlling Interest shareholders in
upstream transactions
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INTERCOMPANY GAIN OF SALE OF
DEPRECIABLE FIXED
ASSETS
PAGDILAO, GERWIN LLOYD V. BSA 3A
DEPRECIABLE FIXED ASSETS
Unrealized intercompany gains on a depreciable

fixed asset are viewed as being realized gradually
over the remaining life of the asset as it is used by
the purchasing affiliate. In effect, apportion of the
unrealized gain is realized each period as benefits
are derived from the asset.
The amount of depreciation recognized each period on an
asset purchased from an affiliate is based on the
intercompany selling price. From a consolidated viewpoint,
however, depreciation must be based on the cost of the
asset to the consolidated entity. Eliminating entries are
needed to restate the asset, the related accumulated
depreciation and depreciation expense to the amounts that
would appear in the consolidated financial statements as if
there had been no intercompany sale.
INTERCOMPANY GAIN OF SALE OF
DOWNSTREAM SALE
PAGDILAO, GERWIN LLOYD V. BSA 3A
DOWNSTREAM SALE
Assume that Pete sells equipment to Sake on December 31,

2020, for P 70,000. The equipment originally cost Pete P
90,000 when purchased three years before December 31,
2020 and is being depreciated over a total life of 10 years
using the straight-line method with no residual value. The
book value of the equipment immediately before the sale by
Pete is computed:
DOWNSTREAM SALE
Original cost to Pete P90,000

Accumulated depreciation on Dec. 31, 2020
Annual depreciation (P90,000 / 10 years) P9,000
Number of years 3 (27,000)
Book Value, Dec. 31, 2020 P63,000

DOWNSTREAM SALE
Sales price of the equipment P 70,000

Book Value (63,000)
Gain on sale of equipment P 7,000

Separate Company
Entries 2020
December 31, 2020
Consolidation Working Paper
The first three eliminations entries are the normal

entries to
1. Eliminate intercompany dividends and NCI in the
dividends paid by Sake
2. Assign income to the NCI
3. Eliminate the stockholders’ equity accounts of Sake and
the investment accounts as of the date of acquisition.
Separate Company Entries 2021
During 2021, Sake will begin depreciating the 70,000 cost of the equipment purchased from
Pete over its remaining life of seven (7) years using the straight line method. The depreciation of
10,000 per year (70,000/7years) is recorded as follows by Sake:
Separate Company Entries 2021
Pete records its share of Sake’s dividends for 2021 of 40,000 using normal cost
method as follows:
Consolidated Working
Paper 2021
Consolidated Working
Paper 2021
PRINCIPLES OF
INVESTMENTS
IN JOINT
ARRANGEMENTS
Trizia Ann P. Prado BSA-3A
OBJECTIVE OF JOINT ARRANGEMENTS
The objective of PFRS 11 is to establish

principles for financial reporting by entities
that have an interest in arrangements that are
controlled jointly (i.e. joint arrangements).
A key feature of PFRS 11 is that the accounting

for joint arrangements focuses on the
economic substance of an arrangement. It
uses a rights and obligations approach in
which parties to an arrangement recognize
their rights and obligations arising from the
arrangement.
PRINCIPLES OF INVESTMENTS IN JOINT ARRANGEMENTS
Arrangement Joint arrangements

- describes an activity or an - are defined as arrangements
operation or a specific grouping of where two or more parties have
assets and liabilities, which may or joint control.
may not form a legal entity such as
a company.
Two Main Characteristics
of Joint Arrangement
(PFRS 11 par. 5):
01 The parties are bound by a

contractual arrangement.
The agreement between the

parties is in the form of a
contract which would generally
be in writing.
CONTRACTUAL ARRANGEMENT (PFRS 11 par. 4):
The purpose, activity How the members of The decision-making

and duration of the joint the board of directors process: the matters
arrangement are appointed requiring decisions, the
voting rights of the
parties, and the
required level of
support for these
How the parties share
The capital or other matters
assets, liabilities,
contributions required revenues, expenses or
of the parties profit or loss relating to
the joint arrangement
Two Main Characteristics
of Joint Arrangement
0 (PFRS 11 par. 5):
2 The contractual arrangement

gives two or more parties
joint control of the
arrangement.
The criterion that identifies a
contractual agreement as a
joint agreement is that of
joint control.
TWO STEPS IN THE ASSESSMENT OF THE EXISTENCE OF
JOINT CONTROL:
Control must be The control over
over the the arrangement
“relevant”
activities. These
01 02 must be in the
hands of more
are to those than one party
activities of the to the
arrangement arrangement.
that significantly
affect the
Assess whether the Assess whether two or
returns of the parties to the more parties have joint
arrangement. arrangement have control.
control.
KEY ASPECTS OF JOINT CONTROL:
✓ Contractually agreed
✓ Control and relevant activities
✓ Unanimous consent
An arrangement is considered a joint

arrangement even if not all of the parties to
the arrangement have joint control.
Nature of Type of Interest in Standard Accounting
relationship with investment voting rights of
investee investee
➢ Regular FVPL or FVOCI Less than 20% PFRS 9 Fair Value
investor asset
➢ Significant Investment in 20% to 50% PAS 28 Equity Method*
influence associate
➢ Control Investment in 51% to 100% PFRS 3 and PFRS Consolidation*
subsidiary 28
➢ Joint control a. Joint Contractually PFRS 11 and other Recognize own
operation agreed relevant PFRSs assets, liabilities,
revenues, and
expenses plus
share in the
assets, liabilities,
revenues and
expenses of the
joint operation.
a. Joint PFRS 11 and PAS Equity Method*

Venture 28
CASE 1: CASE 2: CASE 3:
A, B and C has an A, B, and C has an A and B each has 35% of
arrangement whereby A arrangement whereby A the voting rights of an
has 50% voting rights, B has 50% of the voting arrangement; the
has 30% and C has 20%. rights, B has 25% and C remaining 30% is widely
The parties agreed that has 25%. The parties dispersed. Decisions
at least 75% of the agreed that at least 75% about the relevant
voting rights are required of the voting rights are activities require a
to make decisions about required to make majority of the voting
the relevant activities of decisions about the rights.
the arrangement. relevant activities of the
arrangement.
TYPES OF JOINT ARRANGEMENT:
The classification between a joint venture is dependent on the rights and
obligations of parties within the arrangement.
JOINT OPERATION JOINT VENTURE

- is a joint arrangement whereby the - is a joint arrangement whereby the
parties that have joint control of the parties have joint control of the
arrangement have rights to the arrangement have rights to the net
assets, and obligations for the assets of the arrangement. Those
liabilities, relating to the parties are called joint venturers.
arrangement. Those parties are two-party joint venture: it is not
called joint operators. necessary that the joint venturers must
have equal equity stake in the joint
venture for joint to control to exist.
STRUCTURE OF JOINT ARRANGEMENT
- “a separately identifiable financial structure, including
SEPARATE VEHICLE separate legal entities or entities recognized by statute,
regardless of whether those entities have legal personality”.
A. Joint arrangements not B. Joint arrangements

structured through a structured through a
separate vehicle separate vehicle
In such cases, the contractual The following factors need to be

agreement establishes the parties’ considered:
rights to the assets and liabilities ✓ Legal form of the separate
relating to the arrangement, and the vehicle;
parties’ rights to the corresponding ✓ Contractual terms and conditions;
revenues and obligations for the and
corresponding expenses. ✓ Other facts and circumstances:
Legal form of the separate vehicle
When the parties conduct the joint

arrangement through a separate vehicle
whose legal form causes the separate vehicle
to be considered in its own right, this
indicates that the arrangement is a joint
venture.
If the parties conduct the joint arrangement

in a separate vehicle whose legal form does
not confer separation between the parties
and the separate vehicle, then the
arrangement is joint operation.
Contractual terms
The contractual terms of the arrangement

should be examined to determine if they
provide the parties with rights to the net
assets (a joint venture) or rights to the asset
and liabilities (a joint operation).
Other facts and circumstances
To determine whether a joint arrangement is

a joint operation or a joint venture, the
purpose and design of the joint arrangement
should be understood.
▪ Primarily aims to provide the parties with

an output
▪ Depends on the parties on a continues
basis for settling its liabilities.
CASE 1: CASE 2:
A and B agreed to jointly A and B entered into a joint
manufacture and distribute a agreement to form Alphabets
particular product. Each party will Corporation, which will
carry out different parts of the manufacture materials required in
manufacturing process, bearing its A’s and B’s individual
own costs but will have an equal manufacturing processes. Each
share on the revenues. party will have 50% ownership
interest in Alphabets Corporation.
Alphabets will have its own assets,
liabilities, equity, income and
expenses.
Assessing the terms of the contractual arrangement
Joint Operation Joint Venture
The terms of the The parties with joint control have The parties with joint control have
contractual rights to the assets and obligations rights to the net assets of the
agreement for the liabilities of the arrangement. arrangement
Right to Assets The parties to the joint arrangement The assets brought into the
share all the interests (e.g. rights, arrangement or subsequently
title or ownership) in the assets acquired by the joint arrangement
relating to the arrangement in a are the arrangement assets. The
specified proportion. parties have no interests (i.e. no
rights, title or ownership) in the
asset.
Obligation for The parties to the joint arrangement The joint arrangement is liable for
liabilities share all liabilities, obligations, costs the debts and obligations of the
and expenses in a specified arrangement.
proportion
Joint Operation Joint Venture
Revenues, The contractual arrangement The contractual arrangement
expenses, profit, establishes the allocation of revenues establishes each party’s share in
or loss and expenses on the basis of the the profit or loss relating to the
relative performance of each party to activities of the arrangement.
the joint arrangement. For example,
the contractual arrangement might
establish that revenues and expenses
are allocated on the basis of the
capacity that each party uses in a plant
operated jointly.
Guarantees The parties to joint arrangement are often required to provide guarantees
to third parties that, for example, receive a service from or provide
financing to the joint arrangement. The feature that determines when the
joint arrangement is a joint operation, or a joint venture is whether the
parties have obligations for the liabilities relating to the arrangement (for
some of which parties might or might not have provided a guarantee).
JOINT OPERATION JOINT VENTURE
the party recognizes these assets When a party has an interest in the
and obligations without limitation, net assets and any losses exceed
even if that results in the liabilities the investment, the losses are not
exceeding the assets. recognized
REFERENCES:
❑ Advanced Financial Accounting

Volume 1 (Dayag, 2018)
THANK YOU!
❑ Accounting for Special
Transactions (Millan, 2020)
Do you have any questions?
❑ Advanced Accounting
Principles and Procedural KEEP SAFE & GOD BLESS!
Applications Volume 2
(Guerrero and Peralta, 2017)
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ACCOUNTING
FOR JOINT
OPERATION
Karmela R. Santos
BSA 3-A
TABLE OF CONTENTS
01 02 03
Accounting for Accounting for Accounting for

Joint Operations Joint Operations Joint Operations
General Problems No Separate Records Separate Records
Maintained Maintained
ACCOUNTING FOR JOINT
OPERATION
For a joint operation, the joint operator recognizes its:
• Assets, including its share of any assets held jointly

• Liabilities, including its share of any liabilities incurred jointly
• Revenue from the sale of its share of the output arising from the joint operation
• Share of the revenue from the sale of the output by the joint operation.
• Expenses, including its share of any expenses incurred jointly.
ACCOUNTING FOR JOINT OPERATIONS
Illustration 1:
A and B agreed to combine their operations, resources and expertise to jointly manufacture and sell a
particular product. The joint operators will individually carry out different parts of the manufacturing
process, bearing their own costs but will share equally in the revenues. The joint operation was
completed, and thus terminated, during the year. The following were the transactions:
A had sales of P200 and expenses of P100.
B had sales of P150 and expenses of P60.
REQUIREMENT: Financial Report

The individual statements of comprehensive income of the entities will show the following:
Entity A Entity B
Sales [(200+150) x50%] 175 Sales [(200+150) x50%] 175
Expenses (100) Expenses (60)
Profit 75 Profit 115

Illustration 2:
A and B agreed to acquire and jointly operate an oil pipeline that each will use to
transport its own oil. The joint operators will share equally in the pipeline's
acquisition and operating costs. The acquisition cost was P100,000,000 and the
operating costs were P30,000,000. A and B had total sales of P120,000,000 and
P150,000,000, respectively.

Accounting for Joint Operation Transactions
Separate books of accounts (i.e., journal and ledger) may or may not be used for a joint operation.
NO SEPARATE RECORDS ARE MAINTAINED
Separate books of accounts may not be used most especially when the joint
operation is relatively short-lived.
When separate records are not maintained, joint operation transactions

involving income and expenses are recorded in each of the joint operators’
individual books using the “Joint Operation” account (which is like the
income summary account).
(NO SEPARATE RECORDS MAINTAINED)
Joint Operation
• Merchandise contributions xx • Merchandise withdrawals xx
• Purchases and freight-in xx • Purchase returns and discounts xx
• Sales returns and discounts xx • Sales and other income xx
• Expenses xx • Unsold merchandise, if any xx
Illustration: No separate books maintained
A, B and C formed a joint operation, each having an equal interest in the joint arrangement.
No separate records are maintained for the joint operation.
Transaction A:
A transfers inventory, costing P100, to B (the appointed manager). A pays freight of P5.
A’s Books B’s Books C’s Books
Joint Operation 105 Joint Operation 105 Joint Operation 105
Inventory 100 Payable to A 105 Payable to A 105
Cash 5 To record the merchandise To record the merchandise

contribution of A to the Joint contribution of A to the Joint
To record the transfer of
Operation Operation
inventory to the Joint Operation
Transaction B:
C transfers cash of P200 to B.
Journal Entries:

Joint Operation 200 JO- Cash 200 Joint Operation 200
Payable to C 200 Payable to C 200 Cash 200
Transaction C:
B purchases inventory costing P250. Of that amount, P50
are on account of B.
Journal Entries:

Payable to B 50 JO- Cash 200 Payable to B 50
Accounts Payable 50
Transaction D:
B makes cash sales of P800.
Journal Entries:

Receivable from B 800 JO- Cash 800 Receivable from B 800
Joint operation 800 Joint operation 800 Joint operation 800
Transaction E:
B pays operating expenses of P55 using his own cash.
Journal Entries:

Payable to B 55 Cash 55 Payable to B 55

PROFIT OR LOSS
If the ending inventory is 30, how much is the profit or loss?
Solution:
Joint Operation
(a) Merchandise contribution of A 105

(c) Purchases (inc. B’s contri) 250 800 (d) Sales and other income
(e) Expenses 55 30 Unsold merch.
420
SEPARATE RECORDS ARE MAINTAINED
When separate records are maintained, the

joint operation transactions are recorded in
those separate books in the regular manner,
similar to an ordinary business. The joint
operators record only their own transaction in
their respective books. Accordingly. The
personal accounts and the JO-cash or similar
accounts are not used.
Illustration: Separate books maintained
A, B and C formed a joint operation, each having an equal interest in the joint
arrangement. Separate records are maintained for the joint operation.
Transaction A:
a. A transfers inventory, costing P100, to B (the appointed manager). A pays freight of P5.
A’s Books B and C’s Books Joint Operation’s Books
Joint Operation 105 Inventory 105
Inventory 100 A. Capital 105
Cash 5 To record the contribution of A.

Transaction B:
Journal Entries:
A and B’s Books C’s Books Joint Operation’s Books

Joint Operation 200 Cash 200
Cash 200 C. Capital 200
Transaction C:
B purchases inventory costing P250. Of that amount, P50 are on account of B.
Journal Entries:
A and C’s Books B’s Books Joint Operation’s Books

Joint Operation 50 Purchases 250
Accounts Payable 50 Cash 200
B. Capital 50
Transaction D:
Journal Entries:
A, B, C’s Books Joint Opertion’s Books

Cash 800
Sales 800
Transaction E:
Journal Entries:

Joint Operation 55 Expenses 55
Cash 55 B. Capital 55
PROFIT OR LOSS
Solution:
THANKS
karmelasantos5@gmail.com
Karmela R. Santos

01
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MERCURY VENUS MARS

Mercury is the closest Venus has a beautiful Despite being red, Mars
planet to the Sun name, but it’s terribly hot is a cold place
JUPITER SATURN NEPTUNE

It’s the biggest planet in Saturn is the ringed one Neptune is the farthest
the Solar System and a gas giant planet from the Sun
INFOGRAPHICS MAKE YOUR IDEA UNDERSTANDABLE...
SATURN NEPTUNE
Saturn is the ringed Neptune is the
one and a gas giant farthest planet
MARS JUPITER
Mars is actually a It’s the biggest
very cold place planet of them all
...AND THE SAME GOES FOR TABLES
MASS DIAMETER SURFACE GRAVITY

(earths) (earths) (earths)
MERCURY 0.06 0.38 0.38
MARS 0.11 0.53 0.38
SATURN 95.2 9.4 1.16

THIS IS A MAP
MARS
Despite being red, Mars
is a cold place
MERCURY
planet to the Sun
A TIMELINE ALWAYS WORKS WELL
DAY 1 DAY 2 DAY 3 DAY 4
Mercury is the Jupiter is the Despite being Venus has a

closest planet biggest planet red, Mars is a beautiful name,
to the Sun of them all cold place but it’s very hot
333,000.00
earths is the Sun’s mass
24h 37m 23s

is Jupiter’s rotation period
386,000 km
is the distance between Earth and the Moon
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MERCURY VENUS
Mercury is the closest Venus has a beautiful
planet to the Sun name, but it’s terribly hot
MARS JUPITER
Despite being red, Mars It’s the biggest planet in
is a cold place the Solar System
02
MERCURY
you need it
PROGRESS
70% Venus has a beautiful

name, but it’s hot
Mercury is the closest 30%

planet to the Sun

IDENTIFYING INFORMATION
MERCURY SATURN
50% 20%
Mercury is the closest Saturn is the ringed one

planet to the Sun and a gas giant
WHAT ABOUT THESE PERCENTAGES?
20% 50% 75%
MARS SATURN MERCURY

Despite being red, Saturn is the ringed It’s the smallest planet
Mars ir a cold place one and a gas giant in the Solar System
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Intercompany Profit
Transactions -
Downstream Sale of
Inventory
Maliwat, Ryan Russel M.
Downstream Sale of Inventory
UPSTREAM DOWNSTREAM
Subsidiary - Parent Parent - Subsidiary
DOWNSTREAM
Parent - Subsidiary
sales of merchandise are those

made from a parent company to Until the point of resale, all
its subsidiaries intercompany profits must be
deferred. Consolidated
Comprehensive Income must
be based on the realized
income of the selling affiliate.
For consolidation purposes, profits

recorded on an intercompany
inventory sale are realized in the
period in which the inventory is
resold to outsiders.
❖ Downstream Transaction:
PARENT
❖ It originated from the parent
❖ Parent is the seller and the Subsidiary is the buyer
❖ Shareholders of the parent owns 100%
Parent 100%
Downstream
NCI 0%
SUBSIDIARY ❖ No Allocation
❖ In a downstream sale, the parent recognizes the

PARENT profit. NCI is not affected because the profit pertains
solely to the owners of the parent.
❖ In point of view of parent company “ What is mine is

mine alone” (downstream)
❖ From consolidation point of view they are “one”.

Goal is to eliminate intercompany transactions.
SUBSIDIARY
Intercompany
Profit Transactions
– Inventory
LESLIE MANALANSAN - GROUP 9
TABLE OF CONTENTS
INTER- INTER- DOWN-

INTRO GENERAL
COMPANY COMPANY STREAM
OVERVIEW
SALES AT SALE OF
SALES AT
PROFIT OR INVENTORY
COST LOSS
1 2 3 4 5
INTRODUCTION
INTERCOMPANY
TRANSACTIONS
INTRODUCTION
PARENT SUBSIDIARY
INTERCOMPANY
TRANSACTIONS
INTRODUCTION
INTERCOMPANY INTERCOMPANY
SALES OF SALES OF PLANT
MERCHANDISE ASSETS
INTERCOMPANY
TRANSACTIONS
INTRODUCTION
Papa Bear buys a pair of socks for

P100 from the Department Store,
an unrelated party.
The socks don’t fit Papa Bear’s

The answer would be none. feet, so Papa Bear sells them to
mama Bear for P150.
From the point of view of the

Bear Family, how much income
is realized?
INTRODUCTION
The entries in the separate books of papa and mama are as follows:
Books of Papa Bear Books of Mama Bear

2022 Inventory 100
Cash 100
to record the purchase of inventory
2022 Cash 150 Inventory 150
Sales 150 Cash 150
to record the sale to Mama Bear to record the purchase from Papa Bear
Cost of Sales 100

Inventory 100
INTRODUCTION
The 2022 year- end individual financial statements of the entities show the following:
Books of Papa Bear Books of Mama Bear Papa Mama

2022 Inventory 100
Inventory - 150
Cash 100
to record the purchase of inventory
2022 Cash 150 Inventory 150 Sales 150 -
Sales 150 Cash 150 Cost of Sales - 100 -
to record the sale to Mama Bear to record the purchase from Papa Bear
Gross Profit 50 -
Cost of Sales 100
Inventory 100
INTRODUCTION
When the Bear Family’s consolidated financial statements are prepared, the
intercompany transactions between Papa and Mama are eliminated.
In such case:
✓ The consolidated sales and cost of sales should be zero, and
✓ The consolidated inventory should be measured at its original cost of P100.
GENERAL OVERVIEW
➢ The intercompany profit in inventory transfer between affiliates is computed by

multiplying the inventory held by the buying affiliate which was acquired from
the selling affiliate by the gross profit rate based on sales of the selling affiliate.
➢ The working paper elimination entries used in preparing consolidated financial

statements must eliminate fully the effects of all transactions between related
companies.
INTERCOMPANY SALES AT COST
➢ The inventory amounts at the end of the period require no adjustment for
consolidation.
➢ The amount recognized as cost of goods sold by the affiliate is the cost to the
consolidated entity.
➢ An eliminating entry is needed to remove the intercompany sale and the related
cost of goods sold recorded by the seller.
Accounting
for
Joint Venture
Hello! I’m…
NIKKI SHANE N. SANTOS
GROUP 14
INTRODUCTION
A joint venture is a short-term
business undertaken jointly by two or more
persons who share the profits and losses in an
agreed ratio. If there is no agreement
concerning the sharing of profits or losses, it
is shared equally by all the parties. The parties
who have agreed to undertake the joint
venture are called coventurers or joint
venturers.
3
Objectives of Joint
Venture
To enter a foreign market and even a new or emerging market.
To reduce the risk factor for heavy investment.
To make optimum utilization of resources.
To gain economies of scale.
To achieve synergy.
Joint ventures are primarily formed for the construction of dams and roads, film
production, buying and selling of goods, etc.
4
ACCOUNTING FOR
JOINT VENTURES
-An entity first applies PFRS 11 to determine the type of
arrangement it is involved in.
-Equity method under PAS 28 Investment in Associates and

joint venture.
-Parties have joint control and rights over net assets.
-Control is joint, but profit sharing is not necessarily equal.
5
Transaction between a Joint
Venturer and a Joint Venture
Downstream Transactions Upstream Transactions

When a joint venturer purchases assets from A joint venturer may sell or contribute assets
a joint venture, the joint venturer should not recognize to a joint venture so making a profit or loss. Any such gain
its share of the profit made by the joint venture on the or loss should, however, only be recognized to the extent
transaction in question until it resells the assets to an that it reflects the substance of the transaction.
independent third party, example is until the profit is Only the gain attributable to the interest of the
realized. other joint ventures should be recognized in the financial
Losses should be treated in the same way, statements.
expect losses should be recognized immediately if they The full amount of any loss should be
represent a reduction in the net realizable value of recognized when the transaction shows evidence that
current assets, or a permanent decline in the carrying the net realizable value of current assets is less than the
amount of non-current assets. cost, or there is an impairment loss.
6
Elimination of Intercompany
Profit/Gains and Losses
Profits and losses resulting from “downstream” and
“upstream” transactions between a joint venturer (investor, if associate)
including its consolidated subsidiaries and a joint venture are
eliminated to the extent of the joint venturer’s interest in joint venture.
This is very similar to the procedure for eliminating intra-

group transactions between a parent and a subsidiary.
In equity accounting, it is assumed that the profit or loss

on an investor-joint venture transaction is realized in proportion to the
third parties ownership interests in the associate or joint ventures.
The rationale underlying the partial elimination is that an

investor, when transacting with its associate or joint venture, is
considered to be transacting party with itself to the extent of its
interest in joint venture, and partly with third parties to the extent of
their interests in joint venture.
7
Joint Venture’s
Losses
When the equity method being used by the
joint venture’s share of losses of the joint venture equals or
exceeds its interests in joint venture, the joint venture
should discontinue including its share of further losses.
The investment is reported at zero value.
Should the joint venture return to net income,
the joint venture may resume recognizing its share in net
income only after they equal the share of losses not
recognized.
When there is Impairment on Assets in
Downstream nd Upstream Sales, and it provides evidence
of a reduction in the net realizable value of the assets to be
sold or contributed, or of an impairement loss of those
assets, those losses shall be recognized in full by the joint
venture.
Example:
On January 1, 20x1, ABC Company entered into a
joint arrangement classified as a joint venture. ABC
acquired its 30% ineterst in Joint Venture, Inc. (JV, Inc.)
for P500,000. During the year, JV, Inc. reported
P1,000,000 profit and P200,000 other comprehensive
income, i.e, a total comprehensive income of P1,200,000.
JV, Inc. declared dividends of P600,000.
Requirement: Compute for the carrying amount of ABC’s

investment on December 31,20x1?
9
Solution:
Investment in Joint Venture
Initial Investment, 1/1/x1 500,000
Share in profit (1M x 30%) 300,000 180,000 Dividends (600K x 30%)
Share in OCI (200K x 30%) 60,000
680,000 12/31/x1
10
Thank you!
11
ELIMINATION
PROCEDURES
INTERCOMPANY GAIN
TRANSACTION
– FIXED ASSETS
Jerico V. Pilariza
01 02
General concept Elimination in non-
depreciable fixed
assets
TABLE OF
CONTENTS
03 04
Elimination in Notes
depreciable fixed
assets
Concept
Elimination entries are used in the consolidation worksheet to adjust

the totals of the individual account balances of the separate
2000 to reflect the amounts that would appear if
consolidating companies
the legally separate companies were a single company.
Essentially, intercompany elimination

ensures that there are only third party
transactions represented in consolidated
financial statements.
ELIMINATION PROCEDURE
When intercompany sale of non-depreciable PPE
occurs, eliminations often are needed in the
preparation of consolidated financial statements for as
long as the assets are held by the acquiring company.
The simplest example is the intercompany sale of land.
If, for example, a company sells to a subsidiary land costing P200,000 for also P200,000, the land
continues to be valued at the P200,000 original cost to the consolidated entity:
Parent Subsidiary
Cash 200,000 Land 200,000

Land 200,000 Cash 200,000
When land is sold between affiliated companies

at book value, no special adjustments or
eliminations are needed in preparing the
consolidated statements.
Assume that on August 1, 2021 Ulti Corporation sold land costing P200,000 to its subsidiary, Pageone
Company for P300,000.
Ulti Pageone
Cash 300,000 Land 300,000

Land 200,000 Cash 300,000
Gain on sale of land 1 00,000

land 1 00,000
To eliminate unrealized gain on sale of land
Assignment of Unrealized Profit Elimination
Generally, gains and losses are not considered realized by the consolidated entity until
sale is made to outsiders. Unrealized gains and losses are eliminated in preparing
consolidated financial statements against the interests of those shareholders who recognized
the gains and losses. The direction of the sale determines which shareholders group absorbs
the elimination of unrealized intercompany gains and losses.
SALE ELIMINATION
Downstream Against controlling interest
Upstream:
Wholly owned subsidiary Against controlling interest
Partially owned subsidiary Proportionately against controlling
and non-controlling interest.
Assume that Sasaki Corporation owns 75 percent of the common stock of Who’s Who Company. The
companies report P400 and P200 comprehensive income (CI) for Sasaki and Who’s Who respectively
from their own operations.
Included in the CI of the selling affiliate is an unrealized gain of P40 on the intercompany sale of PPE
Downstream Upstream
Sasaki’s CI from own operations P400

Sasaki’s CI from own operations P400
Who’s Who’s realized CI from own
Unrealized intercompany gain (downstream ( 40)
operations
sale)
CI P200
Sasaki’s realized CI 360
Unrealized intercompany gain (40) 160
Who’s Who’s CI from own operation 200
(upstream sale)
Consolidated CI 560
Consolidated CI 560
Attributable to NCI (P200 x 25%) 50
Attributable to NCI (P160 x 25%) (40)
Attributable to parent (controlling interest) P510
Attributable to parent (controlling interest) P520
Subsequent Disposition of Asset
★ Unrealized intercompany gain on sale of assets is viewed as

being realized at the time the assets are resold to outsiders. For
consolidation purposes, the gain or loss recognized by the
affiliate to outsiders must be adjusted for the previously
unrealized intercompany gain or loss.
★ At the time of realization, the full amount of the unrealized

intercompany gain is added back to the consolidated income
computation and assigned to the shareholder interest from
which it originally was eliminated.
Continuing our example of Ulti Corporation and Pageone Company, assume
that Pageone Company sold the land that it purchased from Ulti to
outsiders for P400,000 on October 1 ,2021 .
Pageone Company, recognizes a gain on the sale to outsiders of P1 00,000
(P400,000 - P300,000). From a consolidated viewpoint, however the gain
is P200,000, the difference between the price at which the land left the
consolidated entity (P400,000) and the price at which the land entered
the consolidated entity (P200,000) when purchased originally by Ulti.
Retained earnings 1 00,000

To adjust previously unrealized gain on land.
UPSTREAM
In the example, if the sale to the outsiders had been made by Ulti following
an upstream sale from Pageone, the working paper treatment would be
the same as in the case of downstream sale except that the debit in
elimination (entry) would be prorated between beginning retained
earnings (P75,000) and NCI (P25,000) based on the relative ownership
interests.
Retained earnings 75,000

NCI 25,000
To adjust previously unrealized gain on land.
Elimination in depreciable fixed assets
۞ 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 period as benefits are derived from the asset.
۞ The amount of depreciation recognized each period on an asset

purchased from an affiliate is based on the intercompany selling price.
From a consolidated viewpoint, however, depreciation must be based
on the cost of the asset to the consolidated entity.
Elimination entry for intercompany sale of depreciable fixed asset
Depreciable Asset xxx

Gain on sale xxx
Accumulated depreciation xxx

Loss on sale xxx
Gain on sale xxx

To eliminate unrealized gain or loss on sale of

depreciable asset and restore the asset to its original
book value.
Additional elimination entry…

Depreciation xxx
Depreciation xxx
To eliminate the overstatement of or to bring back

the value in case of understatement in the
depreciation expense.
Some notes to take…
❖ The unrealized intercompany gains and losses are always fully

eliminated in preparing consolidated financial statement.
❖ The additional entry to eliminate the excess depreciation

increases(downstream) or decreases(upstream) the
consolidated comprehensive income.
* Effect in subsidiary’s income.

TO BE CONTINUED….
ACCOUNTING
FOR JOINT
OPERATION
Karmela R. Santos
BSA 3-A
TABLE OF CONTENTS
01 02 03
Accounting for Accounting for Accounting for

Joint Operations Joint Operations Joint Operations
General Problems No Separate Records Separate Records
Maintained Maintained
ACCOUNTING FOR JOINT
OPERATION
For a joint operation, the joint operator recognizes its:
• Assets, including its share of any assets held jointly

• Liabilities, including its share of any liabilities incurred jointly
• Revenue from the sale of its share of the output arising from the joint operation
• Share of the revenue from the sale of the output by the joint operation.
• Expenses, including its share of any expenses incurred jointly.
Illustration 1:
A and B agreed to combine their operations, resources and expertise to jointly manufacture and sell a
particular product. The joint operators will individually carry out different parts of the manufacturing
process, bearing their own costs but will share equally in the revenues. The joint operation was
completed, and thus terminated, during the year. The following were the transactions:
A had sales of P200 and expenses of P100.
B had sales of P150 and expenses of P60.

Entity A Entity B
Sales [(200+150) x50%] 175 Sales [(200+150) x50%] 175
Expenses (100) Expenses (60)
Profit 75 Profit 115

Illustration 2:
A and B agreed to acquire and jointly operate an oil pipeline that each will use to
transport its own oil. The joint operators will share equally in the pipeline's
acquisition and operating costs. The acquisition cost was P100,000,000 and the
operating costs were P30,000,000. A and B had total sales of P120,000,000 and
P150,000,000, respectively.

Accounting for Joint Operation Transactions
Separate books of accounts (i.e., journal and ledger) may or may not be used for a joint operation.
NO SEPARATE RECORDS ARE MAINTAINED
Separate books of accounts may not be used most especially when the joint
operation is relatively short-lived.
When separate records are not maintained, joint operation transactions

involving income and expenses are recorded in each of the joint operators’
individual books using the “Joint Operation” account (which is like the
income summary account).
(NO SEPARATE RECORDS MAINTAINED)
Joint Operation
• Merchandise contributions xx • Merchandise withdrawals xx
• Purchases and freight-in xx • Purchase returns and discounts xx
• Sales returns and discounts xx • Sales and other income xx
• Expenses xx • Unsold merchandise, if any xx
Illustration: No separate books maintained
A, B and C formed a joint operation, each having an equal interest in the joint arrangement.
No separate records are maintained for the joint operation.
Transaction A:
A transfers inventory, costing P100, to B (the appointed manager). A pays freight of P5.
Inventory 100 Payable to A 105 Payable to A 105
Cash 5 To record the merchandise To record the merchandise

contribution of A to the Joint contribution of A to the Joint
Operation Operation
Transaction B:
Journal Entries:

Joint Operation 200 JO- Cash 200 Joint Operation 200
Payable to C 200 Payable to C 200 Cash 200
Transaction C:
B purchases inventory costing P250. Of that amount, P50
are on account of B.
Journal Entries:

Payable to B 50 JO- Cash 200 Payable to B 50
Accounts Payable 50
Transaction D:
Journal Entries:

Receivable from B 800 JO- Cash 800 Receivable from B 800
Joint operation 800 Joint operation 800 Joint operation 800
Transaction E:
Journal Entries:

Payable to B 55 Cash 55 Payable to B 55

PROFIT OR LOSS
Solution:
Joint Operation
(a) Merchandise contribution of A 105

(c) Purchases (inc. B’s contri) 250 800 (d) Sales and other income
(e) Expenses 55 30 Unsold merch.
420
SEPARATE RECORDS ARE MAINTAINED
When separate records are maintained, the

joint operation transactions are recorded in
those separate books in the regular manner,
similar to an ordinary business. The joint
operators record only their own transaction in
their respective books. Accordingly. The
personal accounts and the JO-cash or similar
accounts are not used.
Illustration: Separate books maintained
A, B and C formed a joint operation, each having an equal interest in the joint
arrangement. Separate records are maintained for the joint operation.
Transaction A:
a. A transfers inventory, costing P100, to B (the appointed manager). A pays freight of P5.
A’s Books B and C’s Books Joint Operation’s Books
Joint Operation 105 Inventory 105
Inventory 100 A. Capital 105
Cash 5 To record the contribution of A.

Transaction B:
Journal Entries:
A and B’s Books C’s Books Joint Operation’s Books

Joint Operation 200 Cash 200
Cash 200 C. Capital 200
Transaction C:
B purchases inventory costing P250. Of that amount, P50 are on account of B.
Journal Entries:

Joint Operation 50 Purchases 250
Accounts Payable 50 Cash 200
B. Capital 50
Transaction D:
Journal Entries:
A, B, C’s Books Joint Opertion’s Books

Cash 800
Sales 800
Transaction E:
Journal Entries:

Joint Operation 55 Expenses 55
Cash 55 B. Capital 55
PROFIT OR LOSS
Solution:
THANKS
karmelasantos5@gmail.com
Karmela R. Santos

01
COMPANY
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02
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WHAT ABOUT THESE PERCENTAGES?
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Equity
Method
INTERCOMPANY
GAIN TRANSACTIONS
– FIXED ASSETS
Vanessa Jeanell L. Pineda

BSA-3A
OUTLINE
01 UPSTREAM
DEPRECIABLE
Assets
02 DOWNSTREAM
EQUITY
METHOD
01 UPSTREAM
NON-
DEPRECIABLE
Assets 02 DOWNSTREAM
Accounting
Objective
Report the subsidiary’s investment and
investment income reflecting the close
relationship between parent and
subsidiaries. EQUITY
METHOD
GUIDELINES
PARENT COMPANY = CONSOLIDATED FINANCIAL STATEMENTS
Net Income Retained Common Additional Dividends

Earnings Stock Paid-in declared or
Capital paid
DEPRECIABLE ASSET
More complicated
than non-depreciable
Investment Income
assets
Reported asset value,

depreciation expense,
and accumulated
depreciation
REMEMBER!
Upstream Sale Downstream

Sale
Selling Affiliate is the Selling Affiliate is the
Subsidiary Parent
Sample Problem:
Assume P Company owns 90% of S Company. On
January 1, 2021, P sells to S an equipment with a
book value of P375,000 (original cost P675,000 and
accumulated depreciation of P300,000) for
P450,000. On the date of the sale, the equipment
has an estimated remaining useful life of three years,
has no residual value, and is depreciated using the
straight-line method. No other equipment is owned
by S Company or P Company.
Assume P Company owns 90% of S Company. On January 1, 2021, P sells to S an equipment with a book value of P375,000 (original cost P675,000
and accumulated depreciation of P300,000) for P450,000. On the date of the sale, the equipment has an estimated remaining useful life of three years,
has no residual value, and is depreciated using the straight-line method. No other equipment is owned by S Company or P Company.
DOWNSTREAM SALE
YEAR OF SALE:
To record SALE (P): To record PURCHASE (S):
Cash 450,000 Equipment 450,000
Accumulated Depreciation 300,000 Cash 450,000
Equipment 675,000
Gain on Sale 75,000
Cost
P675,000
Less: Accumulated
300,000
Depreciation
Book Value P375,000
Selling Price P450,000
GAIN (LOSS) P75,000

Assume P Company owns 90% of S Company. On January 1, 2021, P sells to S an equipment with a book value of P375,000 (original cost P675,000
and accumulated depreciation of P300,000) for P450,000. On the date of the sale, the equipment has an estimated remaining useful life of three years,
has no residual value, and is depreciated using the straight-line method. No other equipment is owned by S Company or P Company.
DOWNSTREAM SALE
YEAR OF SALE:
Cash 450,000 Equipment 450,000
Accumulated Depreciation 300,000 Cash 450,000
Equipment 675,000
Gain on Sale 75,000
450,000 / 3 yrs.
= 150,000
375,000 / 3 yrs. WORKPAPER ENTRIES:
= 125,000
Gain on Sale 75,000
Equipment 225,000
Accumulated Depreciation 300,000

Depreciation Expense 25,000
DOWNSTREAM SALE
SUBSEQUENT YEAR:
WORKPAPER ENTRIES:
Investment in Subsidiary 75,000

Equipment 225,000

DOWNSTREAM SALE
SUBSEQUENT YEAR – 3rd Year:
WORKPAPER ENTRIES:

Equipment 225,000

UPSTREAM SALE
YEAR OF SALE:
To record SALE (S): To record PURCHASE (P):
Cash XXX Equipment XXX
Accumulated Depreciation XXX Cash XXX
Equipment XXX
Gain on Sale XXX
WORKPAPER ENTRIES:
Gain on Sale XXX
Equipment XXX
Accumulated Depreciation XXX

Depreciation Expense XXX
UPSTREAM SALE
SUBSEQUENT YEAR:
WORKPAPER ENTRIES:
Investment in Subsidiary (90%) XXX
Non-controlling Interest (10%) XXX
Equipment XXX

Depreciation Expense XXX
NON-DEPRECIABLE ASSET
Adjust land account
No depreciation
expense, and Adjust investment and
accumulated non-controlling interest
depreciation accounts
Sample Problem:
Assume that P Company owns 85% of S

Company. P company sold land, initially
bought for P210,000, to S for P300,000.
Assume that P Company owns 85% of S Company. P company sold land, initially
bought for P210,000, to S for P300,000.
DOWNSTREAM SALE
YEAR OF SALE:
Cash 300,000 Land 300,000
Land 210,000 Cash 300,000
Gain on Sale 90,000
Cost P210,000
Selling Price 300,000
GAIN (LOSS) P90,000

DOWNSTREAM SALE
YEAR OF SALE:
WORKPAPER ENTRIES:
Gain on Sale 90,000
Land 90,000
SUBSEQUENT YEARS:
WORKPAPER ENTRIES:
Land 90,000
UPSTREAM SALE
YEAR OF SALE:
To record SALE (S): To record PURCHASE (P):
Cash XXX Land XXX
Land XXX Cash XXX
Gain on Sale XXX
WORKPAPER ENTRIES:
Gain on Sale XXX
Land XXX
UPSTREAM SALE
SUBSEQUENT YEARS:
WORKPAPER ENTRIES:
Land XXX
THANK YOU
FOR
LISTENING!
VANESSA JEANELL L. PINEDA
BSA-3A

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INTERCOMPANY SALES OF

PROPERTY, PLANT AND

• Introduction to Intercompany Sales of Property Plant and Equipment

Non-Depreciable Assets Depreciable Assets

- Land - Any other fixed asset

Downstream Sale Upstream Sale

“What is mine is mine alone” “What is yours is ours”

Parent $ 5,000 (15,000 – 10,000)

Parent $ 5,000 (15,000 – 10,000)

1. All intercompany transactions must be eliminated in consolidation

"There's not much to it, running through life is

Unrealized intercompany gains on a depreciable

Assume that Pete sells equipment to Sake on December 31,

Original cost to Pete P90,000

Book Value, Dec. 31, 2020 P63,000

Sales price of the equipment P 70,000

Gain on sale of equipment P 7,000

The first three eliminations entries are the normal

The objective of PFRS 11 is to establish

A key feature of PFRS 11 is that the accounting

Arrangement Joint arrangements

01 The parties are bound by a

The agreement between the

The purpose, activity How the members of The decision-making

2 The contractual arrangement

An arrangement is considered a joint

a. Joint PFRS 11 and PAS Equity Method*

JOINT OPERATION JOINT VENTURE

A. Joint arrangements not B. Joint arrangements

In such cases, the contractual The following factors need to be

When the parties conduct the joint

If the parties conduct the joint arrangement

The contractual terms of the arrangement

To determine whether a joint arrangement is

▪ Primarily aims to provide the parties with

❑ Advanced Financial Accounting

CREDITS: This presentation template was

Accounting for Accounting for Accounting for

For a joint operation, the joint operator recognizes its:

• Assets, including its share of any assets held jointly

A had sales of P200 and expenses of P100.

B had sales of P150 and expenses of P60.

REQUIREMENT: Financial Report

Sales [(200+150) x50%] 175 Sales [(200+150) x50%] 175

Expenses (100) Expenses (60)

Profit 75 Profit 115

REQUIREMENT: Financial Report

NO SEPARATE RECORDS ARE MAINTAINED

When separate records are not maintained, joint operation transactions

A’s Books B’s Books C’s Books

Joint Operation 105 Joint Operation 105 Joint Operation 105

Inventory 100 Payable to A 105 Payable to A 105

Cash 5 To record the merchandise To record the merchandise

A’s Books B’s Books C’s Books

Payable to C 200 Payable to C 200 Cash 200

A’s Books B’s Books C’s Books

Payable to B 50 JO- Cash 200 Payable to B 50

A’s Books B’s Books C’s Books

Joint operation 800 Joint operation 800 Joint operation 800

A’s Books B’s Books C’s Books

Payable to B 55 Cash 55 Payable to B 55

If the ending inventory is 30, how much is the profit or loss?

(a) Merchandise contribution of A 105

When separate records are maintained, the