MATERI PRAKTIKUM AKUNTANSI KEUANGAN LANJUTAN FATA 2019

MATERI LAB 8
INTERCOMPANY PROFIT TRANSACTIONS – BONDS

Constructive Retirement: Pembelian kembali bonds yang terjadi ketika afiliasi (parent
atau subsidiary) membeli outstanding bonds dari pihak yang menerbitkan (parent atau
subsidiary) di pasar terbuka.

Constructive Gain/Loss:

Gain = Price Paid < Book Value of Bonds

Loss = Price Paid > Book Value of Bonds

Piecemeal: Pengakuan bertahap karena adanya perbedaan pengakuan nilai bonds pada parent
dan subsidiary setiap tahunnya.
! Asumsi perhitungan amortisasi discount dan premium dari bonds menggunakan
straight-line method:

𝐶𝑜𝑛𝑠𝑡𝑟𝑢𝑐𝑡𝑖𝑣𝑒 𝐺𝑎𝑖𝑛 𝑜𝑟 𝐿𝑜𝑠𝑠

𝑃𝑖𝑒𝑐𝑒𝑚𝑒𝑎𝑙 𝐴𝑚𝑜𝑟𝑡𝑖𝑧𝑎𝑡𝑖𝑜𝑛 =
𝑈𝑠𝑒𝑓𝑢𝑙 𝑙𝑖𝑓𝑒 𝑜𝑓 𝑏𝑜𝑛𝑑𝑠

! Asumsi perhitungan amortisasi discount dan premium dari bonds menggunakan

effective-interest method:

Penambahan atau pengurangan piecemeal sesuai dengan

hasil perhitungan effective-interest method.

• Downstream: subsidiary’s acquisition of parent’s bonds

• Upstream: parent’s acquisition of subsidiary’s bonds

Premium = Stated Rate > Market Rate

Discount = Stated Rate < Market Rate

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Illustration:
On January 10, 2022, Bella Corp. acquired 80% interest in Andrew Corp. for $24,000,000.
Andrew’s equity consisted of $19,600,000 share capital ordinary and $10,400,000 retained
earnings on the date of acquisition. Bella issued $16,000,000 par, 4%, 5 years bonds with
$1,200,000 unamortized premium on January 12, 2022. Six days later, Andrew purchased
20% of these bonds for $2,900,000 from an investment broker. The interest is paid semi-
annually on January 1 and July 1. Straight-line method amortization is applicable.
Andrew’s net income for December 31, 2021 is $900,000.

Prepare the calculations and entries for the year ended December 31, 2022!

Solution:

1. Preliminary Computation (in thousands)

Fair Value of 80% Interest acquired $ 24,000

Implied Fair Value of 100% interest ($24,000 ÷ 80%) $ 30,000
BV of Andrew ($19,600 + $10,400) $ 30,000
Total Excess 0

Bella Corp
Issuance of Bella’s bonds on January 12, 2022
Selling Price $ 17,200
Face Value of the Bonds $ 16,000
Premium $ 1,200

$1,200,000
𝐴𝑚𝑜𝑟𝑡𝑖𝑧𝑒𝑑 𝑃𝑟𝑒𝑚𝑖𝑢𝑚 = = $240,000 𝑝𝑒𝑟 𝑦𝑒𝑎𝑟
5 𝑦𝑒𝑎𝑟𝑠

Andrew Corp
Purchasing 20% of Bella's bonds on January 18, 2022
Purchase Price $ 2,900
Face Value of the Bonds (20% × $16,000) $ 3,200
Discount $ 300

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$300,000
𝐴𝑚𝑜𝑟𝑡𝑖𝑧𝑒𝑑 𝐷𝑖𝑠𝑐𝑜𝑢𝑛𝑡 = = $60,000 𝑝𝑒𝑟 𝑦𝑒𝑎𝑟
5 𝑦𝑒𝑎𝑟𝑠

Consolidated
BV of 20% Bonds Payable purchased by Andrew Corp on January
$ 3,440
18, 2022 ($17,200 × 20%)
Purchase Price $ 2,900
Constructive Gain $ 540

$540,000
𝑃𝑖𝑒𝑐𝑒𝑚𝑒𝑎𝑙 𝐴𝑚𝑜𝑟𝑡𝑖𝑧𝑎𝑡𝑖𝑜𝑛 = = $108,000 𝑝𝑒𝑟 𝑦𝑒𝑎𝑟
5 𝑦𝑒𝑎𝑟𝑠

2. Journal Entries (in thousands)

Bella Corp Andrew Corp

Date Account Amount Date Account Amount
Investment in Bella ’s
12-Jan Cash $ 17,200 18-Jan $ 2,900
Bonds
Bonds Payable $ 17,200 Cash $2,900
1-Jul Bonds Payable* $ 120 1-Jul Cash*** $ 64
Investment in Bella’s
Interest Expense $ 200 $ 30
Bonds
Cash** $ 320 Interest Revenue $ 94
31-Dec Bonds Payable $ 120 31-Dec Interest Receivable $ 64
Investment in Bella’s
Interest Expense $ 200 $ 30
Bonds ****
Interest Payable $ 320 Interest Revenue $ 94

Notes:
*) $120,000 = Bella’s bonds amortized premium × 6/12 ($240,000 × 6/12)
**) $320,000 = The amount of interest of Bella’s bonds payable ($16,000,000 × 4% × 6/12)
***) $64,000 = The amount of interest received from Andrew’s purchase of Bella’s bonds
($3,200,000 × 4% × 6/12)
****) $30,000 = Andrew ’s amortized discount × 6/12 ($60,000 × 6/12)

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3. Balance at December 31, 2022 (in thousands)

Bonds Payable (Bella’s) Investment in Bella’s Bonds

On January 12, 2022 $ 17,200 On January 18, 2022 $ 2,900

Premium Amortization $ 240 Discount Amortization $ 60
On December 31, 2022 $ 16,960 On December 31, 2022 $ 2,960

Interest Expense $ 400 Interest Revenue $ 188

4. Income Calculation (in thousands)

CI Share NCI Share
(80%) (20%)
Andrew’s Net Income ($900) $ 720 $ 180

Add: Constructive Gain $ 540 -

Less: Piecemeal Recognition of Constructive
$ (108)
Gain
Income from Andrew $ 1,152 $ 180

5. Investment Calculation (in thousands)

CI Share NCI Share

(80%) (20%)
Andrew’s Underlying Equity ($19,600 +
$ 24,720 $ 6,180
$10,400 + $900)
Add: Constructive Gain ($540 - $108) $ 432 -

Ending Investment in Andrew $ 25,152 $ 6,180

OR

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MATERI PRAKTIKUM AKUNTANSI KEUANGAN LANJUTAN FATA 2019

CI Share NCI Share

(80%) (20%)
Beginning Investment in Andrew ($30,000) $ 24,000 $ 6,000

Add: Income from Andrew $ 1,152 $ 180

Ending Investment in Andrew $ 25,152 $ 6,180

6. Workpaper Journal Entries

a. To eliminate reciprocal bonds investment and bonds liability and to enter gain
Bonds Payable ($16,960 × 20%) $ 3,392
Investment in Bella Bonds $ 2,960
Gain on Retirement of Bonds $ 432

b. To eliminate reciprocal interest revenue and interest expense

Interest Revenue $ 188
Interest Expense ($400 × 20%) $ 80
Gain on Retirement Bonds $ 108

c. To eliminate reciprocal interest payable and interest receivable

Interest Payable $ 64
Interest Receivable $ 64

d. To eliminate income and adjust investment to its beginning of the period balance
Income from Andrew $ 1,152
Investment in Andrew $ 1,152

e. To enter NCI Share and NCI

NCI Share $ 180
NCI $ 180

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f. To eliminate reciprocal investment and equity balance and record beginning NCI
Capital Stock $ 19,600
Retained Earnings $ 10,400
Investment in Andrew $ 24,000
NCI $ 6,000

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