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The principles of consolidated financial statements in this Topic apply to primary beneficiaries' accounting for consolidated variable interest entities (VIEs). After the initial measurement, the assets, liabilities, and noncontrolling interests of a consolidated VIE shall be accounted for in consolidated financial statements as if the VIE were consolidated based on voting interests. Any specialized accounting requirements applicable to the type of business in which the VIE operates shall be applied as they would be applied to a consolidated subsidiary. The consolidated entity shall follow the requirements for elimination of intra-entity balances and transactions and other matters described in Section 810-10-45 and paragraphs 810-10-50-1 through 50-1B and existing practices for consolidated subsidiaries. Fees or other sources of income or expense between a primary beneficiary and a consolidated VIE shall be eliminated against the related expense or income of the VIE. The resulting effect of that elimination on the net income or expense of the VIE shall be attributed to the primary beneficiary (and not to noncontrolling interests) in the consolidated financial statements.
In the preparation of consolidated financial statements, intra-entity balances and transactions shall be eliminated. This includes intra-entity open account balances, security holdings, sales and purchases, interest, dividends, and so forth. As consolidated financial statements are based on the assumption that they represent the financial position and operating results of a single economic entity, such statements shall not include gain or loss on transactions among the entities in the consolidated group. Accordingly, any intra-entity profit or loss on assets remaining within the consolidated group shall be eliminated; the concept usually applied for this purpose is gross profit or loss (see also paragraph 810-10-45-8).
The amount of intra-entity income or loss to be eliminated in accordance with paragraph 810-10-45-1 is not affected by the existence of a noncontrolling interest. The complete elimination of the intra-entity income or loss is consistent with the underlying assumption that consolidated financial statements represent the financial position and operating results of a single economic entity. The elimination of the intra-entity income or loss may be allocated between the parent and noncontrolling interests.
Selling price |
$ 100 |
Less: cost of sales |
(60) |
Profit |
$ 40 |
Company A |
Company B |
||
Sales |
$ 1,000 |
$ 400 |
|
Cost of sales |
(600) |
(260) |
|
Profit |
$ 400 |
$ 140 |
|
Selling and administrative |
160 |
40 |
|
Net income |
$ 240 |
$ 100 |
Dr. Capital stock in Company B |
$ 120 |
|
Cr. Investment in Company B |
$ 120 |
Dr. Sales |
$ 100 |
|
Cr. Cost of sales |
$ 60 |
|
Cr. Inventory |
$ 40 |
Dr. Capital stock in Company B ($200 total capital x 40%) |
$ 80 |
|
Cr. Noncontrolling interest in Company B |
$ 80 |
Consolidated net income prior to elimination of intercompany profit |
$ 340 |
Elimination of intercompany profit in inventory |
(40) |
Consolidated net income |
$ 300 |
Net income attributable to NCI |
40 |
Net income attributable to Company A |
$ 260 |
Company A |
NCI |
Total |
|
Share of Company B’s net income |
$ 60 |
$ 40 |
$ 100 |
Full attribution of intercompany elimination to controlling interest |
(40) |
— |
(40) |
Total |
$ 20 |
$ 40 |
$ 60 |
Company B selling price |
$ 120 |
Company B cost of sales |
(100) |
Company B profit |
$ 20 |
Company A's 60% share of Company B profit |
$ 12 |
Plus: reduction in cost of sales |
40 |
Total income attributable to Company A |
$ 52 |
Selling price |
$ 100 |
Less: cost of sales |
(60) |
Profit |
$ 40 |
Company A |
Company B |
||
Sales |
$ 1,000 |
$ 400 |
|
Cost of sales |
(600) |
(260) |
|
Profit |
$ 400 |
$ 140 |
|
Selling and administrative |
160 |
40 |
|
Net income |
$ 240 |
$ 100 |
Dr. Capital stock in Company B |
$ 120 |
|
Cr. Investment in Company B |
$ 120 |
Sales |
$ 100 |
|
Cost of sales |
$ 60 |
|
Inventory |
$ 40 |
Capital stock in Company B |
$ 80 |
|
Noncontrolling interest in Company B |
$ 80 |
Company A |
NCI |
Total |
|
Share of Company B's net income |
$ 60 |
$ 40 |
$ 100 |
Full attribution of intercompany elimination to controlling interest |
(40) |
— |
(40) |
Total |
$ 20 |
$ 40 |
$ 60 |
Capital stock in Company B |
$ 120 |
|
Investment in Company B |
$ 120 |
Sales |
$ 100 |
|
Cost of sales |
$ 60 |
|
Inventory |
$ 40 |
Capital stock in Company B |
$ 80 |
|
Noncontrolling interest in Company B |
$ 80 |
Company A |
NCI |
Total |
|
Share of Company B's net income |
$ 60 |
$ 40 |
$ 100 |
Proportionate attribution of intercompany elimination |
(24) |
(16) |
(40) |
Total |
$ 36 |
$ 24 |
$ 60 |
Full attribution to controlling interest |
Partial attribution to NCI |
|||
Consolidated net income prior to elimination of intercompany profit |
$ 340 |
$ 340 |
||
Elimination of intercompany profit |
(40) |
(40) |
||
Consolidated net income |
$ 300 |
$ 300 |
||
Net income attributable to NCI |
40 |
24 |
||
Net income attributable to Company A |
$ 260 |
$ 276 |
Selling price |
$ 100 |
Less: cost of sales |
(60) |
Profit before tax |
$40 |
Company B |
NRV write-down |
Company B after write-down |
|
Inventory |
$ 100 |
$ (30) |
$ 70 |
Sales |
— |
— |
— |
COGS |
— |
(30) |
(30) |
Pretax (loss) |
— |
$ (30) |
$ (30) |
Sales |
$ 100 |
|
Cost of sales |
$ 60 |
|
Inventory |
$ 40 |
Dr. Inventory |
$ 30 |
|
Cr. Cost of sales |
$ 30 |
Dr. Cost of sales |
$ 12 |
|
Cr. Deferred income liability |
$ 12 |
Co A |
Co B |
Total |
Adj 1 |
Adj 2 |
Total after Adj |
Adj for NCI |
Total Consol |
|
Inventory |
— |
$70 |
$70 |
$(40) |
$30 |
$60 |
— |
$60 |
Deferred income liability |
— |
— |
— |
— |
— |
— |
12 |
12 |
Sales |
$100 |
— |
$100 |
$(100) |
— |
— |
— |
|
COGS |
(60) |
(30) |
(90) |
60 |
30 |
— |
(12) |
(12) |
Pre-tax profit |
$40 |
$(30) |
$10 |
$(40) |
$30 |
— |
(12) |
$(12)* |
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