On consolidation I have come across the scenario where the parent will be charging the sub an amount for legal fees. These fees will be revenue income in the parent and are to be capitalised in the sub as they relate to an asset under construction.
How do I eliminate this transaction on consolidation? I need to take the income out of the parent, but in the sub this amount goes to the balance sheet. This creates a miss match between P&L and balance sheet.
Any thoughts?
Replies (9)
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Has the holding company provided the legal services itself, or has it purchased them from a third party provider of legal services and recharged the cost to the subsidiary?
Then, if the recharge is really in the holding company’s sales WhichTyler’s entry is what you need. It eliminates the expense from the P&L a/c you see.
If you were happy that the group’s own labour could be capitalised you would not need to make any adjustment at all.