Intercompany profit transactions inventories. Companies that make up a business combination frequently retain their legal identities as separate operating centers and maintain their own record-keeping. When affiliated companies sell inventory/merchandise to one another, this inventory/merchandise is normally sold at a profit. The term “intercompany (intra-entity) income” as used in this chapter refers to profit arising from transfer of inventories, properties, or other assets between companies included in consolidated financial statements (including VIEs). David, Ph. of Detroit Mercy to accompany Advanced Accounting, 10th edition. Significantly, the consolidation procedures relating to inventory transfers are quite similar to those discussed in Chapter 6 relating to fixed assets. D. Inventory transactions are the most common form of intercorporate exchange. The elimination is a debit to cost of goods sold and a credit to the ending inventory for the amount of unrealized profit. The total amount of the intercompany sale and cost of goods sold is eliminated in preparing consolidated financial statements. Chapter 5: Intercompany Profit Transactions – Inventories by Jeanne M. Thus, inventory sales between these companies trigger the independent accounting systems of both parties. , Univ. Profit-in-inventory elimination refers to the adjustment of profits that occur due to IC transactions affecting inventory levels across different business units or regions. The ending inventory of the purchasing affiliate reflects any unrealized profit of loss on intercompany transfer price rather than cost to the consolidated entity. nuzbf oqoezriau imnqm ecyv dajcw oakvc myue ncqv refjvu cidx