28 May 2013
we have a different division say for Eg A AND B, We have a different Profit and Loss account and we prepare Consolidated Financial Statement for A& B . Tax working is done by combining A &B as Single entity.
In this i have a doubt, A Entity planned to sell an asset to B at market value. Say for eg: WDV OF A : 10 Lakhs, Sold to B : 15 lAKHS.
wHAT IS THE ACCOUNTING TREATMENT?
How I WILL COMBINE THIS FOR TAXATION CALCULATIONS?
28 May 2013
If these A and B are the same divisions in a single entity (I take it as yes as the IT workings are done as a single entity)
One entity cannot make profit by transacting with itself. So, it is more like revaluation of the asset from 10 lakhs to 15 lakhs. Revalue the asset in the books of A and then transfer it to B division.
The revalued amount cannot be used for income tax depreciation workings. It must be 10 Lakhs for the calculation of IT depreciation. The deferred tax workings must also be taken care.
The other option is to revalue the asset in the books of A before transfer and devalue the asset in the books of B to bring it back to 10 Lakhs after transfer. The consolidated books will not have any impact as the reserves will get adjusted and the fixed asset value will be 10 Lakhs in the consolidated financial statement of the entity. However, the loss on devaluation must be charged of to P/L in B.
29 May 2013
Thanks a lot for answering my query. I still have a doubt. A and B are Same division in single entity. But they have separate Profit and loss account and we also prepare consolidated financial statement. What will be accounting entries for revaluing the assets in the books of A and transferring it to B . what are the tax implications?
What will be the treatment for deffered tax?Thanks in advance.
CAclubindia
