Intercompany Inven - .ppt

* * * * * * * * * 9 * Downstream Sale of Inventory - Illustration Inventory held two or more periods Prior to liquidation, an eliminating entry is needed in the consolidation workpaper each time consolidated statements are prepared to restate the inventory to its cost to the consolidated entity For example, if Special Foods continues to hold the inventory purchased the following eliminating entry is needed in the consolidation workpaper each time a consolidated balance sheet is prepared for years following the year of intercompany sale, for as long as the inventory is held: Upstream Sale of Inventory When an upstream sale of inventory occurs and the inventory is resold by the parent to a nonaffiliate during the same period, all the parent’s equity-method entries and the eliminating entries in the consolidation workpaper are identical to those in the downstream case Upstream Sale of Inventory When the inventory is not resold to a nonaffiliate before the end of the period, workpaper eliminating entries are different from the downstream case only by the apportionment of the unrealized intercompany profit to both the controlling and noncontrolling interests Upstream Sale of Inventory - Illustration Upstream Sale of Inventory - Illustration All eliminating entries are the same in the upstream case as in the downstream case except for entry E(24). Refer Figure 7-3 in the text for the Consolidation Workpaper. Upstream Sale of Inventory - Illustration Consolidated Net Income—20X1 Upstream Sale of Inventory - Illustration As in the downstream illustration, the investment account balance at the end of 20X2 is $284,000. The consolidation workpaper used to prepare consolidated financial statements at the end of 20X2 appears in Figure 7–4 in the text. Upstream Sale of Inventory - Illustration Workpaper entry E(32) deals explicitly with the elimination of the inventory profit on the upstream sale. Upstream Sale of Inventory - Illustration Consolidated Net Income—20X2