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Sale of asset between subsidiaries in a group

We are looking at selling an asset owned by one subsidiary to another, its an internally developed project, we have an external independant valuation of it that is considerably above its development costs - so I am happy that the value attributed to it is correct.

What is the correct accounting in both companies, is the gain on disposal a gain that should be recorded in the same way as disposal of a regular asset?  Or is the gain a revaluation ?  In which case a revaluation reserve would be shown in the aquiring company and the transfer recorded at cost?

The figures involved are signficant.

 

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20th Jul 2018 10:11

You only ask about the correct accounting in both companies. If that is your only concern, the gain on disposal will be in the profit and loss account of the selling company in the normal way.

If the group prepares consolidated accounts someone also needs to consider how to deal with the transaction at that level.

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By Ranse
20th Jul 2018 11:19

inter group transfers will be eliminated at the consolidation levels , including profits etc ect ....dont forget to consider the tax treatment ,although one expect this to be neutral , but future consideration of de-grouping must not be overlooked.

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20th Jul 2018 16:40

My concern is if we only had a single company, then the transaction would be Dr Fixed Asset and Cr Revaluation reserve

By "moving" the asset in this way we are recognising what would otherwise be a revaluation through the P&L. Both subsidiaries are 100% owned by the same parent.

I agree on the consolidated position, its the presentation in the subsidiaries that concerns me.

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By Ranse
to AdrianLawrence
20th Jul 2018 19:32

since its an internally developed asset , it should be recognised as per accounting standards if its meets all the conditions. the transfer will be deem to be a sale to the subsidiary at market value . the accounting will be Dr Asset in the Subs and Cr Bank in the subs , from the parents side you will de-recognise the asset, profit on disposal will be recognised in the books of the parents books ....then on consolidation you cancel have to the adjustment as usual i.e cancelling intergroups transactions.....

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to AdrianLawrence
20th Jul 2018 22:22

AdrianLawrence wrote:

My concern is if we only had a single company, then the transaction would be Dr Fixed Asset and Cr Revaluation reserve

But you don’t have a single company. You have two separate ones, who are entering into a transaction with each other.

PS. The consolidated accounts will of course represent the group as if it were a single company.

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