Advanced Accounting (Canada) · Intercompany Profits: Inventory & Land

An analyst compares ROE and debt-to-equity across parent-only and consolidated statements. Which direction of intercompany profit drags ROE down, and why does consolidation worsen leverage?

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More in Intercompany Profits: Inventory & Land

Under the equity method, a parent recorded its full share of investee income that includes unrealized intercompany profit. What two-step adjustment is required, and what is the common error?

A subsidiary with a 20% NCI has an unrealized intercompany profit in ending inventory. Whether the NCI absorbs part of the holdback depends on one thing — what, and how does the answer differ?

After an intercompany sale of land, why can't you realize the held-back profit gradually the way you would for a transferred depreciable asset?

An asset is transferred between affiliates at a price below the seller's cost, producing an intercompany loss. When must that loss be eliminated on consolidation, and when must it stay?

Beyond intercompany sales and purchases, name the other intercompany revenue/expense pairs that must be eliminated — and what happens to the income statement if one is missed.

A team eliminates intercompany sales but forgets to eliminate the matching intercompany purchases (cost of goods sold). What is wrong with consolidated net income, and what is the correct effect of doing it properly?

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