When there are upstream/downstream transactions associated under equity method, the investor removes his share of unearned income from the equity income. Understood this part.
Why are we doing this when the investor never recorded any profit associated with this transaction?
Thanks in advance.
I am not sure I understand your question. The products sold to the investee (downstream) if unsold would be deducted from investor NI. In any other situation the company selling the products would take revenue and income so due to the relationship we need to adjust the income of the investor.
Products sold to the investor (upstream) if unsold would be removed from the investees NI
Thanks Thecodont.
“the company selling the products would take revenue and income” answers it.
I just want to make sure that we are reducing unearned revenue from an already recorded revenue, when the goods were sold upstream/downstream.