Why should a long term equity investment be reversed when a counter current transaction is in the co

Because the counter-current trading enterprises are compilingConsolidated statementsIt does not need to be counted in the group, because control is not achieved, the equity method is used.

accounting, so there is no need to consider the enterprises that use the equity method of accounting when preparing the consolidated statements.

The group that prepares the consolidated statements only prepares the consolidated statements for the enterprises that have achieved control, so the inventory of the parent company in the consolidated statements of the counter-current transaction is inflated, and the inventory must be credited and transferred back to the long-term equity investment.

Other-related

For associates.

or in the case of a counter-current transaction between a joint venture and an investment enterprise's ** assets, where there is an unrealized internal transaction gain or loss in the transaction (i.e., the relevant assets are not to an external independent third party**), the investment enterprise shall offset the impact of the unrealized internal transaction gain or loss when the equity method is used to calculate and confirm that it is entitled to the investment profit or loss of the associate or joint venture.

When an investment enterprise purchases assets from its associate or joint venture, it should not recognize the portion of the profit or loss arising from the transaction of the associated enterprise or joint venture before the assets** are given to an external independent third party.

In this case, the counter-current trading enterprises do not need to be counted in the group when preparing the consolidated statements, because they do not achieve control and use the equity method of accounting, so they do not need to consider the enterprises that use the equity method of accounting when preparing the consolidated statements.

The group that prepares the consolidated statements only prepares the consolidated statements for the enterprises that have achieved control, so the inventory of the parent company is inflated in the consolidated statements for counter-current transactions, and the inventory must be credited.

I know why the credit is credited to the inventory, but I also don't understand why the debit is recorded for long-term investment.

The write-down of inventory is because the transaction was not realized, and it should be recorded according to the cost at the time of the subsidiary, but in fact, this is more than the inventory recorded in the parent company, so there is more corresponding income, from the perspective of consolidated statements, the transaction is not realized, there should not be this income, and the inventory cost should also be the cost of the subsidiary not the cost of the parent company, so it should be reduced.

(1) Forward and reverse current transactions occur between investment enterprises and joint ventures, if there are other subsidiaries of the investment enterprises in addition to the joint ventures, then it is necessary to prepare consolidated financial statements, and the following adjustments should be made in the consolidated financial statements for forward and reverse flow transactions:

Adjusting entries in the consolidated statement of counter-current transactions.

Borrow: Long-term equity investment.

Credit: Inventory. Adjusting entries in the consolidated statement of downstream transactions:

Borrow: operating income.

Credit: Cost of Sales.

Investment income. 2) Understanding of entries when trading against the current:

When making entries in individual statements, the investment unit and the investee are regarded as a whole to adjust the profits, offsetting the internal unrealized profits and losses, so the long-term equity investment is correspondingly less recognized due to the less recognized profits, then when preparing the consolidated statements, the investment unit and its subsidiaries or parent companies are regarded as a whole, so the internal unrealized profits and losses originally offset in the individual report should be restored, and the long-term equity investment should be rerecognized. This part of the profit and loss is reflected in the inventory purchased by the investment unit, and the book value of the inventory should also be reduced.

3) Understanding of entries when trading downstream:

When making entries in individual statements, the investment unit and the investee are regarded as a whole, offsetting the internal unrealized gains and losses, and less investment income is recognized, so when preparing the consolidated statements, the investment unit and its subsidiaries are regarded as a whole, so the original offsetting of internal unrealized gains and losses should not be offset, and the investment income should be rerecognized to truly reflect the amount of investment income obtained. The original unrealized internal profit or loss is reflected in the difference between the income and costs recognized by the investment unit, so the amount of operating income and operating costs should be offset.

4) There is such a difference, mainly because the downstream transaction and the reverse current transaction involve different statement items for the parent company, if it is a downstream transaction, the parent company recognizes the profit and loss, and the corresponding offset affects the profit and loss items in the income statement;

In the case of a counter-current transaction, it affects the inventory cost of the parent company and the recognition of long-term equity investment projects, so the offsetting is adjusted to the asset items in the balance sheet.

These two minority interests are the corresponding balance sheet, and the minority profit and loss are the corresponding income statement;In fact, the profit and loss (profit) attributable to minority shareholders in the current period decreased, and the corresponding equity attributable to minority shareholders also decreased, and the corresponding profit and equity attributable to the parent company increased.

When offsetting the long-term equity investment of the parent company and the equity of the subsidiary, if the net profit of the subsidiary is not deducted from the unrealized internal profit or loss.

Borrow: share capital. Capital reserve.

Surplus reserve. Undistributed profit at the end of the year.

Credit: Long-term equity investment.

Minority interest (net profit used at this time does not take into account unrealized internal gains and losses) borrows: investment income.

Minority profit and loss (net profit used at this time does not take into account unrealized internal profit and loss) undistributed profit at the beginning of the year.

Credit: Withdrawal of surplus reserves.

Assignment to the owner.

Undistributed profit at the end of the year.

Then when the follow-up offset, you need to do a step.

Borrow: Minority Interest (Unrealized Internal Profit or Loss of Reverse Flow Transactions * Minority Shareholding Ratio) Loan: Minority Shareholders' Profit or Loss.

In general, the net profit including unrealized internal gains and losses is offset first, and then the minority interests are adjusted when the unrealized internal gains and losses are subsequently adjusted.

Yes, because at this point it is time to look at the profit from a holistic perspective.

For example, your dad has a item worth $100, you have $200, and your dad gives you a and you give him $150. After that, from a personal point of view, your dad has 150 yuan, and you own 150 yuan worth of A items tassel limbs (bought for 150) and 50 yuan, for a total of 350 yuan for the two of you. But from an outsider's point of view, you are a family, and your family assets have not changed at all, just exchange them internally.

The family assets are $200 and $100 worth A, for a total of $300. Therefore, the inflated $50 needs to be adjusted. The same is true for the opposite, you have a value of 100 at the beginning of the term, your father has 200, and after the exchange, it is still the same from a family perspective.

The unrealized gains and losses from internal transactions incurred by the subsidiary to the assets of the parent company shall be offset between the "net profit attributable to the owners of the parent company" and the "profit and loss of minority shareholders" according to the distribution ratio of the parent company to the subsidiary. The specific accounting treatment is as follows:

1. Offset the unrealized internal sales losses included in the internal sales revenue, costs and inventories formed by internal sales. The offsetting entries in the working papers of the consolidated financial statements are as follows:

Borrow: operating income.

Stocks. Credit: Cost of Sales.

2. The unrealized internal sales losses included in the inventory formed by internal sales are apportioned. Of the unrealized inside sales losses included in inventories, the amount of unrealized inside sales losses attributable to minority shareholders is the amount of unrealized internal sales losses multiplied by the share of minority shareholders. The offsetting entries in the working papers of the consolidated financial statements are as follows:

Borrow: Minority shareholders' gains and losses.

Credit: Minority Interests.

3. Offset the income tax impact of counter-current inventory transactions. The offsetting entries in the working papers of the consolidated financial statements are as follows:

Borrow: Income tax expense.

Credit: Deferred tax liability.

4. Offset the share of the deferred income tax on minority shareholders' interests arising from the offsetting of counter-current inventory transactions.

Borrow: Minority interests.

Credit: Minority Shareholders' Gains and Losses.

Well, let me tell you what I think.

Your original sentence "Downstream and counter-current transactions are adjusted on the profits of the investee, and adjusted through entries, debit: investment income, credit: long-term equity investment."

I would like to say that this entry of yours means that you have recognized the return on your investment... Otherwise, why would you debit your investment income...

However, the actual situation is: it belongs to the unrealized benefits, and it cannot be confirmed...

If the investee announces a net profit of 10 million this year. You have 30% of the shares, using the equity method. But there is an insider deal between you and the investee. For example, if you cost 1 million things, sell him 1.2 million. The profit is 200,000.

When you adjust your long-term equity investment under the equity method, the $200,000 cannot be recognized. It cannot be reflected in the entry.

Borrow: Long-term investment - Company B - profit and loss adjustment (10 million - 200,000) * 30%.

Credit: Investment income (10 million-200,000) * 30%.

If you want to make a consolidated statement:

Borrow: operating income 1.2 million * 30%.

Credit: Operating cost 1 million * 30%.

Investment income 200,000*30%.

If it is sold to a third party.

At this time, it is time to recognize the investment income:

Borrow: Long-term Investment-Company B-Profit and Loss Adjustment (200,000)*30%.

Credit: Investment income (200,000) * 30%.

The principle of counter-current trading is exactly the same. Just trading against the current, this part of the profit is reflected in your inventory:

In the consolidated statement:

Borrow: Long-term Investment-Company B-Profit and Loss Adjustment (200,000)*30%.

Credit: Inventory (200,000) * 30%.

Pure hand-played, pure original, if there is any mistake, please point, I hope it will help you.

In the case of a merger of counter-current transactions, the offsetting cost of income is the investee.

The income statement of the investee does not participate in the consolidation, and enters the consolidated statement in the form of net profits, and then enters the consolidated statement in the form of investment income of the right investor, so the investment income is offset at the time of consolidation.

In the case of downstream trading, the cost of income is the investor's and wants to participate in the merger, so it needs to be offset, while the inventory is the investee's and does not participate in the merger, but it is in the form of the investee's net assets, and then enters the consolidated statement in the form of the investor's long-term equity investment, so the long-term equity investment is offset when the merger is offset.

To put it simply, it can be summed up in two sentences: counter-current trading, offsetting assets; Trade with the current to offset profits.

Counter-current transactions, offsetting assets, that is, in counter-current transactions, part of the value of inventory purchased by the enterprise from the associated enterprise is unrealized profits, which should be offset when preparing the consolidated enterprise statements, and the offsetting entries are:

Borrow: Long-term equity investment.

Credit: Inventory. Downstream transactions, offsetting profits, that is to say, in downstream transactions, part of the sales revenue of the enterprise to the associated enterprise has not been realized, and it should be offset when preparing the consolidated enterprise statements, and the accounting entries are:

Borrow: operating income.

Credit: Cost of Sales.

Investment income.

This piece of downstream trading is indeed difficult to understand if you don't listen to the teacher.

First of all, let's talk about countercurrent, which is when the subsidiary sells inventory to the parent company. In fact, it is to reverse the operating income and operating costs in the opposite direction. The difference between revenue and cost is recognized as profit by the subsidiary, and when the parent company does not have this part of the inventory, this part of the profit is equivalent to unrealized.

In fact, it is "left pocket into right pocket", transferring the parent company's money to the subsidiary's account. Transfer the goods of the subsidiary to the warehouse of the parent company. Actually, you shouldn't use the "Investment Income" account, mainly because there is no way.

Let's talk about downstream trading, where the parent company sells goods to the subsidiary. Actually, the stock here is the excess part. For example, the parent company's inventory of 1 million yuan is sold to the subsidiary for 1.5 million. The subsidiary naturally registered an inventory of 1.5 million. But in fact, 500,000 is virtual.

I didn't express it very well, so I suggested listening to the explanation of the online school teacher, and thinking about it for myself, and you should be able to understand. And that's not really the point of this chapter.

The main body is an investment enterprise.

Downstream Trading: Investment Enterprises Associated Enterprises or Joint Ventures (i.e., Assets of Investment Enterprises to Associates or Joint Ventures).

Can you imagine that if the investment enterprise is given to a non-associate, the cost of income is recognized, and the cost of income is recognized, and the inventory is recognized, and the income is reconfirmed by the sale, whether there is more inventory, which should be adjusted, and you should also figure out the countercurrent.

Counter-current trading: investment enterprises Associated enterprises or joint ventures (i.e., assets of an associate or joint venture to an investment enterprise).