Eliminating Intercompany Gain or Loss on Sale of Fixed Assets

Transcription

1 Guideline Eliminating Intercompany Gain or Loss on Sale of Fixed Assets Product(s): Controller 8 Area of Interest: Financial Management

2 Eliminating Intercompany Gain or Loss on Sale of Fixed Assets 2 Copyright and Trademarks Licensed Materials - Property of IBM. Copyright IBM Corp IBM, the IBM logo, and Cognos are trademarks or registered trademarks of International Business Machines Corp., registered in many jurisdictions worldwide. Other product and service names might be trademarks of IBM or other companies. A current list of IBM trademarks is available on the Web at While every attempt has been made to ensure that the information in this document is accurate and complete, some typographical errors or technical inaccuracies may exist. IBM does not accept responsibility for any kind of loss resulting from the use of information contained in this document. The information contained in this document is subject to change without notice. This document is maintained by the Best Practices, Product and Technology team. You can send comments, suggestions, and additions to cscogpp@ca.ibm.com.

3 Eliminating Intercompany Gain or Loss on Sale of Fixed Assets 3 Contents 1 INTRODUCTION PURPOSE APPLICABILITY EXCLUSIONS AND EXCEPTIONS ELIMINATING THE INTERCOMPANY GAIN/LOSS ON FIXED ASSET SALES ACCOUNT DEFINITION ACCOUNT SET UP CURRENCY CONVERSION GROUP JOURNALS COPYING GROUP JOURNALS REPORTING AND MONITORING ELIMINATION Introduction 1.1 Purpose This document will provide guidelines to using group journals to eliminate the intercompany gain or loss on fixed asset sales. 1.2 Applicability Controller 8.3 and Controller Exclusions and Exceptions There are no known exceptions and exclusions at the time this document was created. 2 Eliminating the Intercompany Gain/Loss on Fixed Asset Sales 2.1 Account definition In order to proper eliminate the intercompany gain/loss on fixed asset sale the following accounts will need to be created: Account for the fixed asset disposal on the balance sheet Account for the gain/loss on the income statement Movement account/extensions for eliminating the gain/losses in subsequent year (i.e. retained earnings) Account for Depreciation on the profit and loss Accumulated depreciation account on the balance sheet. -NB- If you are using integrated accounts for your fixed assets then it would mean adding a new movement extension for both original cost and accumulated depreciation. You may want to look at this issue if your company intends to move assets between your subsidiary companies, especially at a gain or loss. I have focused on isolated these items to help better tracked them in the system, especially if the volume increases by your company.

4 Eliminating Intercompany Gain or Loss on Sale of Fixed Assets Account Set up The following information will show the account set up for each account that is required for properly eliminating the gain/loss on fixed asset sale. Fixed Asset Account You should use a special account to identify the fixed gain/loss for each applicable fixed asset type. You may need to set up a new movement extension. The below is an example of movement extension/account for property, plant and equipment:

5 Eliminating Intercompany Gain or Loss on Sale of Fixed Assets 5 -NB- The disposal of Intercompany Fixed Asset will be an integrated account or will have its balance tied to the closing balances. If you are using dimensionality then you will need to select a the appropriate division you want to reverse the gain or loss. Accumulated Depreciation Account You should use a special account to identified the disposal of the fixed asset for each applicable fixed asset account. You may be able to use the same movement extension previously described in the fixed asset account section. This may be the best approach, because it will help with controlling/maintaining the account structures and the overall system.

6 Eliminating Intercompany Gain or Loss on Sale of Fixed Assets 6 Gain or loss Account You should use a special account to identified the gain or loss on the profit an loss statement from any other gain. The below is an example of an account for intercompany gains or losses. Depreciation Account You should use a special account to identify the intercompany depreciation as part of your depreciation/amortization expenses. The below is an example of depreciation account:

7 Eliminating Intercompany Gain or Loss on Sale of Fixed Assets 7 Retained Earnings

8 Eliminating Intercompany Gain or Loss on Sale of Fixed Assets 8 You should use a special account to identified the gain or losses to adjust the value after year-end. The below is an example of an account: 2.3 Currency Conversion Since, I am using group journals then the transaction should be recorded at the group level currency in the journals. This can make handling currency differences much simpler to handle and less confusion to analyzing any variances. 2.4 Group Journals The automatic journals do not work very well will the eliminating of the gains or losses, especially around handling the depreciation adjustment for each period. It is recommended that you used group journals as the work around to eliminated the gains or losses as well as making the period depreciation adjustment.

9 Eliminating Intercompany Gain or Loss on Sale of Fixed Assets 9 Group Journal #1 Eliminating the gain or loss in the year incurred/earned The first group journal created is eliminated the actual gain or loss on the profit and loss and inflated value of the cost on fixed assets -NB- The group journal was entered in the group currency, which should minimize any currency issues. The group journal requires division and for profit and loss division and profit group. You may want to assigned it to a default division or product or if you can identified it to the proper division or profit. You can include a description about the journal entry. I have included the actual gain value and period of the item. I am using F or fixed rules to copy over year-end. I have also assigned specific journal type and in this case I have used Intercompany (IC). Group Journal #2 Amortizing the Depreciation over the remaining life of the Asset.

10 Eliminating Intercompany Gain or Loss on Sale of Fixed Assets 10 The second group entry was created to adjust both the depreciation and accumulated depreciation over the remaining life of the asset. -NB- The group journal was entered in the group currency, which should minimize any currency issues. The group journal requires division and for profit and loss division and profit group. You may want to assigned it to a default division or product or if you can identified it to the proper division or profit. You can include a description about the journal entry. I have included the actual gain value and period of the item. I am using F or fixed rules to copy over year-end. I have also assigned specific journal type and in this case I have used Intercompany (IC). You will need to keep track of this journal along with any other journals that related to eliminated of gains and losses on fixed assets sales (This will be discussed further in the document on how to monitor the process)

11 Eliminating Intercompany Gain or Loss on Sale of Fixed Assets 11 Group Journal #3 Eliminating the gain or loss subsequent to yearend The third group entry was created to adjust to adjust the gain or loss out of retained earnings after a subsequent year-end -NB- The group journal was entered in the group currency, which should minimize any currency issues. The group journal requires division and for profit and loss division and profit group. You may want to assigned it to a default division or product or if you can identified it to the proper division or profit. You can include a description about the journal entry. I have included the actual gain value and period of the item. I am using F or fixed rules to copy over year-end. I have also assigned specific journal type and in this case I have used Intercompany (IC). You will need to keep track of this journal along with any other journals that related to eliminated of gains and losses on fixed assets sales (This will be discussed further in the document on how to monitor the process)

12 Eliminating Intercompany Gain or Loss on Sale of Fixed Assets Copying Group Journals You will need to copy the journals between periods. It is important that you review the copying journals after your year-end to ensure that has the correct accounts defined. You have different options around how you want to copy the journals, i.e. selecting all or specific journal types, from/to copying periods and what journals you want to copy. It is important to review the group journals after each is copied to ensure they are correct. You may need to make changes to the accounts (see below example)

13 Eliminating Intercompany Gain or Loss on Sale of Fixed Assets 13 There was account change on the original gain or loss from profit and loss account to retained earnings account. The gain would have been reflected in the closing retained earnings and thus needs to be eliminated out of retained earnings or until the equipment is sold outside the company.

14 Eliminating Intercompany Gain or Loss on Sale of Fixed Assets Reporting and monitoring elimination It could get confusing around the eliminating of the gain or loss, especially if you have more of this type of transaction. The account structure as discussed earlier will help, but you may need to create a specific form to keep track of these items. The below is example of a couple of forms that can be used to help with controlling and monitoring the process. The above was only one example, so it was easy to keep track of the item. However, if you had more of these items, then you would need a way to keep track of these items.