Intragroup asset assignment data processing
Introduction¶
This data processing automatically generates the required consolidation journals when an asset is assigned within the group. You can choose to eliminate the capital gain/loss reported by the assigning entity, or the sales revenues and the book value. You can also decide to adjust the depreciation journals of the acquiring entity to reconstruct the historical cost and the depreciation fund of the asset within the group.
Data processing description¶
An intercompany asset assignment event involves two entities belonging to the same group, and is a neutral operation from the consolidated point of view. The data processing therefore adjusts the values of the asset, the depreciation fund and the yearly depreciation as if the assignment had never taken place. The return to group historical cost principle is therefore applied.
If an asset is sold, the following entries are made in the financial statements of the individual entities involved in order to register the asset at the accounting situation that existed prior to the event:
| Entities involved | Registration |
|---|---|
| Assigning entity | - Registration of the capital gain/loss deriving from the difference between the sale price and the net book value of the assigned asset or separate registration of the sale price and the net book value, depending on the management type. - Write off of any impairment of the assigned asset and closing of its relative depreciation fund. |
| Acquiring entity | - Registration of the purchase of the new asset, with a single entry with the difference between the original asset value and the assignment value, or with two different entries for the two values. - Registration of any impairment and the yearly depreciation amount calculated on the basis of the asset’s useful life and at the assignment price. |
The data processing runs the following actions:
- Writes off the capital gain/loss, or separately writes off the sale revenue and the book value registered by the assigning entity and thus adjusts the consolidated profit.
- Adjusts the historical cost of the asset which, following the assignment event, is registered according to the new sale price.
- Adjusts the value of any impairment to report the asset’s loss of value.
- Adjusts the value of the annual depreciation amount and the relative provisions to bring them back to the original scenario before the assignment event.
To restore the value of the depreciation fund, the intragroup asset assignment data processing reconstructs both the assigning entity’s depreciation plan and the acquiring entity’s new depreciation plan.
Note: while the capital gain/loss write off journal is only generated in the fiscal year in which that P&L component materialises, i.e. the year in which the assignment event occurs, the adjustment journals of the yearly depreciation amounts and the relative funds are generated up until the end of the asset’s book life. That is, until the asset has been completely depreciated in the acquiring entity’s financial statements.
Data processing setup¶
To run this data processing, the following must be specified:
- the accounts and categories to be entered in the adjustment journals, or the asset classes (Asset classes for Intercompany assignments page)
- the data on the assignment event (Intercompany asset assignment page)
Running the data processing¶
Since the calculation of intercompany asset assignments is group data processing, it can be run in the following ways:
- from the consolidator processes cockpit
- from a data entry form
- from a workflow task
- from a job task
Generated journals¶
For the first fiscal year in which the assignment event occurs, two consolidation journals are generated:
- one capital gain elimination journal or, a journal that eliminates the sale price and the net book value separately
- one journal to restore the group historical cost and the ordinary depreciation plan
Both journals have the assigning entity and the acquiring entity in their header but they are single-entity on the rows. This indicates the sub-consolidations in which the two journals must be reprocessed.
All the rows of the generated journals have “PROC_IC_PROFIT” as their origin.
Capital gain or sale price and net book value elimination journals¶
Given a historical cost of the asset subject to assignment and the value of the depreciation fund when the assignment takes place, CCH Tagetik obtains the book value of the asset from the assigning entity’s financial statements. The difference between that book value and the assignment price in the transaction represents the capital gain/loss to be eliminated.
Depending on the data processing setup, the following journals can be generated:
| If... | Then... |
|---|---|
| the capital gain is managed. | an elimination journal with a reserve contra-entry is created. |
| the sale revenues and book value is managed. | two journals are generated: - one to report the sale revenue (with reserve contra-entry) - one to report the book value, calculated taking account of the historical costs and the depreciation fund (always with reserve contra-entry) |
The assigning entity has also booked the sale of the asset in its financial statements by reducing the dedicated asset variation account and writing off the value of the depreciation fund and any impairment (those write offs are also made on a variation account).
To correctly restore the value of the group historical cost, CCH Tagetik adjusts the outgoing entry of the asset variation account and reports it in the variation account on which the acquiring entity registered the assignment event. It works in a similar way on the variation entries of the depreciation fund and impairment.
Journal to restore the group historical cost and the ordinary depreciation plan¶
This journal adjusts both the consolidated value of the asset and its relative fund, by bring those values back to the value that it would have had in the absence of a transaction, and the annual depreciation amount.
Depending on the data processing setup, the system may generate one adjustment on the assets account for an amount equal to the difference between the asset’s historical cost and its new acquisition price, or two different entries to report the historical cost and the acquisition price.
Therefore, given the historical cost of the asset and its new acquisition price, an adjustment is generated on the assets account for an amount equal to the difference between the two amounts. The value of the depreciation fund and the value of any impairment at the time of the assignment are then transferred to the acquiring entity.
The yearly depreciation amount to be adjusted is obtained from a comparison between the depreciation plans generated for the assigning entity and the acquiring entity.
In the years following the assignment event, the capital gain elimination journal is no longer generated, given that there are no P&L events to be cancelled in the financial statements of the entities involved.
In the journal to restore the asset’s historical cost, new adjustment rows for the yearly depreciation amounts are generated every year until the asset has completely depreciated.
Example
The ownership structure register specifies that company A owns companies B and C and that company B owns an asset booked as follows:
| Historical cost | 100 |
| Depreciation fund | -20 |
| Annual depreciation % | 10% |
Company B sells the asset to company C at a assignment price of 90.
In company B’s financial statements, the assignment is booked as follows:
| Initial balance | Purchases | Increases | Sale | Final balance | |
|---|---|---|---|---|---|
| Assets | 100 | -100 | 0 | ||
| Depreciation fund | -20 | 20 | 0 |
| Profit & Loss | |
| Capital gain | -10 |
In company C’s financial statements, supposing that the annual depreciation % is 10%, the new acquisition is registered as follows:
| Initial balance | Purchases | Increases | Sale | Final balance | |
|---|---|---|---|---|---|
| Assets | 90 | 90 | |||
| Depreciation fund | -9 | -9 |
| Profit & Loss | |
| Amortisation/Depreciation | 9 |
In the A-B-C aggregated financial statements, we have the following:
| Initial balance | Purchases | Increases | Sale | Final balance | |
|---|---|---|---|---|---|
| Assets | 100 | 90 | -100 | 90 | |
| Depreciation fund | -20 | 0 | -9 | 20 | -9 |
| Profit & Loss | |
| Capital gain | -10 |
| Amortisation/Depreciation | 9 |
Due to the group historic cost principle, the A-B-C consolidated financial statements without an intercompany assignment is the accounting situation to be restored:
| Initial balance | Purchases | Increases | Sale | Final balance | |
|---|---|---|---|---|---|
| Assets | 100 | 100 | |||
| Depreciation fund | -20 | -10 | 20 | -30 |
| Profit & Loss | |
| Capital gain | |
| Amortisation/Depreciation | 10 |
The elimination journal for the capital gain is shown below:
| B | Capital gain | 10 | Write off of the capital gain on the IC sale |
| B | Reserve | -10 | |
| B | Assets - Sale | 100 | Write off of sale in B |
| B | Assets - Purchase | -100 | Write off of sale in B |
| B | Depreciation fund - Sale | -20 | Write off of sale in B |
| B | Depreciation fund - Increases | 20 | Write off of sale in B |
The journal for restoring the group historic cost is as follows:
| C | Assets - Purchases | 10 | |
| C | Assets | 10 | Restoration of the historic cost |
| C | Depreciation fund - Increases | -1 | |
| C | Depreciation fund - Sale | -20 | |
| C | Depreciation fund | -21 | Restoration of the value of the fund |
| C | Amortisation/Depreciation | 1 | Restoration of the yearly depreciation amount |
| C | Reserve | 10 |