Land and building profit . Washington Inc., owns an 80% interest in Solar Develo

Question

Land and building profit . Washington Inc., owns an 80% interest in Solar Development Company. In a prior period, Solar Development purchased a parcel of land for $50,000. During 2015, it constructed a building on the land at a cost of $500,000. The land and building were sold to Washington at the very end of 2015 for $750,000, of which $100,000 was for the land. It is estimated that the building has a 20-year life with no sal- vage value 1. Prepare all worksheet eliminations that would be made on the 2015 consolidated worksheet as a result of the real estate sale. 2. Prepare all worksheet eliminations that would be made on the 2017 consolidated worksheet as a result of the 2015 real estate sale.

Explanation / Answer

Part 1

As it is an upstream transaction, the unrealised profit will be eliminated from the consolidated profit & loss a/c and Non Controlling Interest.

Unrealised Profit Of Land = $100,000-$50,000

= $50,000

This $ 50,000 of Unrealised Profit will be eliminated from Consolidated P&L to the extent of 80% i.e.$40,000 and balance profit of $10,000 will be reduced from Non Controlling Interest (NCI).

Unrealised Profit Of Building= $650,000-$500,000

=$150,000

Depreciation in the Books of Washington (Holding)=$650,000/20

=$32500

Dep. overcharged=($650,000-$500,000)/20

=$7500

Unrealised Profit to the extent of $7500 is not required to be eliminated as dep. is overcharged due to sale transaction b/w holding & subsidiary.

So, Unrealised Profit of $150,000-7500 i. e. $142,500 will be eliminated from

Consolidated P&L=$142,500*80% = $114,000

NCI = $142,500*20% = $28500

Part 2

For Consolidated Worksheet of 2017, we have to eliminate the dep. element from the consolidated P&L which is overcharged.

Dep. Overcharged = $7500

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