The problem of counter current trading of long term equity investments

First of all, Company A has 20% of the equity of Company B [using the equity method for subsequent accounting], and does not control Company B [the consolidated statements are only prepared under control conditions], so the consolidated objects of Company A's preparation of consolidated financial statements mentioned above are only Company A and its own subsidiaries, and have nothing to do with Company B!!

Secondly, under the counter-current transaction, company B sold 9 million things to company A and sold 15 million, and at the end of the year, A did not have external **, and there was 6 million yuan for the realization of internal transaction profit and loss, so when confirming the share of company B's net profit, company A should exclude this part of the profit and loss for internal transactions, and the adjusted net profit is 4800-600 = 4200 and then multiplied by 20% of the shares. You can do this entry:

Borrow: Long-term equity investment - profit and loss adjustment 960

Credit: Investment income 960

Borrow: Investment income 120

Credit: Long-term Equity Investment - Profit and Loss Adjustment 120

The result of the synthesis is the entry you have above.

When Company A prepared its own consolidated statements, Company A's inventory was over, 1.2 million more, and it had to be eliminated, because from the perspective of the whole, this part of the inventory was inflated, so it had to be eliminated. [On the consolidated statements, what you really eliminate, what assets you have to eliminate what assets, can not be replaced by long-term equity investment, what profit and loss you are to eliminate what profit and loss, can not be replaced by investment income], you want to eliminate inventory, not the long-term equity investment in the above entry, so you have to make a loan: long-term equity investment to flush it back There is also the entry prepared by the consolidated financial statements of Company A is not accounted for, only listed on the working papers of the consolidated financial statements, On its individual balance sheet, inventories are still 1500

Finally, the 10-year profit and loss that was originally realized in internal transactions has been realized from the perspective of A and B as a whole, so for Company A, you have to add that part of the realization on the basis of the profit of Company B in 10 years, and you will have that entry.

Issue. 1. Why is the inventory only written off by 600*20% at the time of entry 2? Isn't the merger here not the consolidated accounting statements of Company A and Company B, but the consolidated financial statements of Company A and its branches?

Yes, it was Company A and its branches, not Company B.

Issue. Second, entry 2 has already added 600 * 20% to the long-term equity investment Why is it still adding 600 * 20% in 2010?

Since in 2009, this part of the unrealized internal transaction profit and loss was offset, and in 2010, Company B will all this part of the goods to the outside world, so this part of the profit has been realized, so it is necessary to add back the offset in 09.

In response to question one:

The title informs that "Company A acquired 20% of the voting shares of Company B on January 1, 2009, which can exert significant influence on Company B", which indicates that it is an investment in an associate, so Company B is not included in the scope of the merger. If the title says that Company B is a subsidiary of Company A, then it is necessary to prepare consolidated statements for Company B.

Secondly, under the counter-current transaction, Company B sold 9 million things to Company A and sold 15 million, and at the end of the year, A did not have an external **, and there was an unrealized internal transaction profit and loss of 6 million, so Company A should exclude this part of the profit and loss for internal transactions when confirming the net profit share of Company B.

The adjusted net profit is: 4800-600 = 42 million yuan, and the income to be recognized is: 4200 * 20% = 8.4 million yuan.

Borrow: Long-term equity investments – profit and loss adjustment 840

Credit: Investment income 840

aFirst of all, the internal transaction is not considered, and the income is directly recognized at 20% of the net profit of 48 million yuan, 4800 * 20% = 9.6 million yuan.

Accounting treatment of Company A:

Borrow: Long-term equity investment - profit and loss adjustment 960

Credit: Investment income 960

b. Internal transactions, the income and costs of Company A have increased and should be reduced.

Borrow: 300 (1500*20%) of operating income

Credit: Operating cost 180 (900*20%)

Long-term equity investment 120 (the inventory should have been loaned, but the inventory of Company B and Company A was not included in the scope of consolidation).

So the combined entries for A and B are:

Borrow: Long-term equity investments – profit and loss adjustment 840

Credit: Investment income 840

Borrow: 300 (1500*20%) of operating income

Credit: Operating cost 180 (900*20%)

Investment income 120

In response to question two:

In 2010, Company A sold the commodity for 18 million yuan to a third party, assuming that Company B achieved a net profit of 30 million yuan in 2010.

Adjust the net profit of Company B in 2010: 3000 + (1500-900) = 36 million yuan.

Company A's confirmed income: 3600*20%=7.2 million yuan.

Because the adjustments against the current are all unrealized internal transactions, and in 2010, Company A sold the commodity yuan to a third party, so it should add this part of the profit. In 2009, the adjustment was deducted 600, and in 2010, 600 was added, both of which were adjusted on the basis of net profit. Company A only recognises earnings on the basis of net profit to increase the book value of long-term equity.

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.

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.

I have seen too many similar problems like this, in fact, the treatment in the book is a single-line merger method, which is simply to replace the net assets of the investee with long-term equity investment, and replace the profits of the investee with investment income.

Counter-current trading, standing on the whole, the value of the investor's inventory has been inflated, and the investee's profit has been inflated, and the adjustment should be adjusted to the investor's inventory and the investee's profit, but due to the practice of single-line consolidation, the adjustment entries on the individual statements are borrowed: investment income Credit: long-term equity investment In fact, the net assets of company B corresponding to the long-term equity investment are not affected, and what should be affected is the inventory, so the long-term equity investment needs to be returned in the consolidated statements, and the inventory is offset and borrowed

Long-term Equity Investment Loan: Inventory.

What affects the investment income of A, and the long-term investment is adjusted as a counterparty, so the long-term investment has to be transferred back, I understand that the impact is a direct impact, if you want to say indirect, it will be too much, and your retained earnings will have to be adjusted...

Look at the question you asked, who is A and who is B?

People are getting lazier and lazier these days.

You don't understand what the landlord wants to ask, he wants to ask, in the downstream transaction, the net profit of the investee does not include unrealized internal trading gains and losses at all, why should it be deducted when calculating the net profit.

I remember that Mr. Fufu said that the adjustment of profits and losses in individual statements of downstream trading is controversial, so from the perspective of taking the test, I suggest that you can only remember not to ask the reason for the right to ask. Perhaps as IAS improves, the treatment of downstream transactions will be adjusted.

Remember: Downstream transactions and counter-current transactions in individual statements should be adjusted. The consolidated statement only adjusts for counter-current transactions.

First of all, you need to distinguish between copy, individual report and BAI

And report, take your topic as an example, du because of downstream trading, zhi is equivalent to investing in dao

Company A sells to Company B, the investee, so that in the individual statements of Company A, there must be corresponding revenues and costs; However, from the perspective of consolidated statements, when calculating, as long as this inventory is not before the third party**, this part of the profit and loss is equal to not being realized. I think it's easier to understand that you think from the perspective of investor company A, and you should write off this part of the profit and loss, and at the same time write off the corresponding income and costs. Counter-current trading, by the way, if this question is sold by company B to company A, and it is ultimately on the side of enterprise A, it means that the inventory is just a change of place, and the inventory on the book of company A has been inflated, in fact, it is only 6 million, and it has become 10 million, so there is more inventory, therefore, counter-current trading is to offset the assets, and the corresponding proportion of the inflated inventory is washed away.

This is my own understanding, the way to remember, you see what I say, can you understand, are all ultimately on the side of Company A, in the consolidated statements, which is the over, which one, and then the corresponding account is long-term investment - profit and loss adjustment. Hope it helps.

Regardless of whether the transaction is in the current or against the current, the unrealized gains and losses from internal transactions shall be deducted by the investor on a case-by-case basis. Counter-current is prone to genus.

It is understood that this unrealized internal trading gain or loss is in the investee's net profit. However, the unrealized gains and losses from internal transactions of downstream transactions appear outside the net profit of the investee, but they still have to be offset on a pro rata basis.

Since A's holding of 25% of C's equity has a significant influence, when A and its subsidiaries prepare consolidated statements, they should offset the unactual historical part of the profits and inventories from the counter-current transactions with Company C, so it should be (600-400)*20%=40, and the long-term equity investment should be confirmed to increase accordingly.

The realized portion of the offsetting profit in counter-current trading.