Hi,
I cannot find an example about removing intercompany transactions for acquisition method in the CFAI book. From what I searched from website, it seems the treatments for upstream transactions and downstream transactions are different in acquisition method. However, I remember the treatments are the same in the equity method: the proportionate unrealized G/L is removed in the equity income.
Below is the website comment for acquisition method. My question is why for the downstream case, the treatment is inconsistent? The unrealized G/L is 100% removed in acquisition method.
Inventory sales in downstream transactions (from parent to subsidiary) are accounted for as internal transfers between departments of a single entity:
- _In the consolidated balance sheet, eliminate intercompany payable and receivable, purchase, cost of sales, and profit/loss arising from transaction. _
Inventory sales in upstream transactions (from subsidiary to parent):
- _In the consolidated balance sheet, eliminate intercompany payable and receivable. Profits and losses are eliminated against noncontrolling and controlling interest proportionally. _