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Capitalization cost and Consolidation of financial statement

Shahbaz Hussain's Profile

I need help with a specific problem. We have 100% wholly owned subsidiary providing software services to only our company (holding company). We have incorporated payments to subsidiary as an expense (e.g USD 5,000) and now have capitalize this cost. It has reduced the cost incurred by us to zero. Our subsidiary incorporate receipts from us as revenue (USD 5,000) and have made expenses on payroll to Developers for same amount. Please advise how we will consolidate financial statement at the year end. Revenue of subsidiary is USD 5,000 (received from us) and we have capitalized that cost in our books as it is an asset for us and we can sell software for multiple years. If we can take subsidiary revenue as our revenue while consolidation?? or what we need to do as there is no expense exists after capitalization to eliminate against subsidiary revenue. Main question is how capitalization cost will remain in our books. Kindly advise, Thanks

Answers

Shahbaz Hussain
Title: Manager Finance & Admin
Company: Knowledge Platform
(Manager Finance & Admin, Knowledge Platform) |

Hi,

Please help

Kevin Roones
Title: Senior Accounting Professional
Company: In-between
(Senior Accounting Professional, In-between) |

I don't know where you are located, but I will answer your question based on U.S. GAAP. If you report on a consolidated basis, you would need to eliminate the $5,000 revenue and expense. There shouldn't be any expense recognized on a consolidated basis because you are capitalizing the development costs. I'm assuming that the technical feasibility of the software has been established since you say you can sell it for multiple years. Once the software is released into production you should begin amortizing it over an appropriate period.

Shahbaz Hussain
Title: Manager Finance & Admin
Company: Knowledge Platform
(Manager Finance & Admin, Knowledge Platform) |

Thanks Kevin, so from your answer It looks that in consolidation we will eliminate subsidiary revenue with our cost (holding company) and will also eliminate subsidiary cost being we have capitalized it. If I am understanding it correctly?
or subsidiary revenue with subsidiary cost as we have capitalized our?

Shahbaz Hussain
Title: Manager Finance & Admin
Company: Knowledge Platform
(Manager Finance & Admin, Knowledge Platform) |

Kevin or anyone else can elaborate it?? please help on this

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