Journal Entry for Transfer of Fixed Assets Between Related Companies
When fixed assets are transferred between related companies, both the transferring and receiving companies need to record the transaction in their books. Here are the typical journal entries for both companies:
For the Transferring Company (Company A):
1. Derecognizing the Fixed Asset
If Company A transfers a fixed asset to a related company, it needs to remove the asset and its accumulated depreciation from its books.
| Date | Particulars | Debit (₹) | Credit (₹) |
|---|---|---|---|
| 2024-06-07 | Accumulated Depreciation A/c | 30,000 | |
| Loss on Sale of Fixed Asset A/c | 10,000 | ||
| To Fixed Asset A/c | 50,000 | ||
| To Gain on Sale of Fixed Asset A/c | 10,000 | ||
| (Being derecognition of fixed asset transferred to related company) |
Explanation:
- Accumulated Depreciation A/c is debited to remove accumulated depreciation.
- Loss on Sale of Fixed Asset A/c is debited to recognize a loss if applicable.
- Fixed Asset A/c is credited to remove the asset's book value.
- Gain on Sale of Fixed Asset A/c is credited to recognize a gain if applicable.
For the Receiving Company (Company B):
2. Recording the Fixed Asset
Company B records the asset at its fair value or the carrying amount, depending on the agreement between the related parties.
| Date | Particulars | Debit (₹) | Credit (₹) |
|---|---|---|---|
| 2024-06-07 | Fixed Asset A/c | 40,000 | |
| To Payables to Company A/C | 40,000 | ||
| (Being fixed asset received from related company) |
Explanation:
- Fixed Asset A/c is debited to record the acquisition of the asset.
- Payables to Company A/C is credited to recognize the liability towards Company A.
