Please respond to thefollowing:
Theconsolidation process required for the intra-entity transfer of depreciableassets is different from the requirements for inventory and land. Analyze thecurrent consolidation process for an intra-entity transfer of depreciableassets compared to inventory and land. Suggest at least one improvement to theprocess. Provide an example to support your recommendation.
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An intra-entity transfer is atransaction that happens within a business combination where no net changeoccurs for either company. The recorded effects are omitted so thatconsolidated statements only reflect one transaction. In the consolidationprocess with land, both companies show results of the transactions; however,adjustments must happen for the account balances to reflect a single entity.The events for an intra-entity land sale include:
With depreciable assets, theobjectives remain the same as with land; however, the difference comes in afterthe sale, and the calculation of depreciation and amortization is needed. Theseadjustments change from period to period. Because excess depreciation is closedannually to Retained Earnings, the overstatement in the equity account isreduced. To come up with consolidated amounts, the overstatement amount must bedetermined and removed from the year of the depreciable asset transfer andrecognized over the asset’s remaining life.