Question

In: Accounting

What exactly are intra-entity profits from upstream or downstream transfers? Can you give an example? How...

What exactly are intra-entity profits from upstream or downstream transfers? Can you give an example? How do intra-entity profits that exist in any year affect the non-controlling interest calculations?

Solutions

Expert Solution

Intra entity profits are those that are recognised when a transfer of asset occurs between 2 companies in a group for example, from parent to subsidiary or subsidiary to parent. When it occurs from parent to subsidiary it is called as downstream transfer and from subsidiary to parent is known as upstream transfer.

To understand how any intra entity profits that exist affect the NCI, we have to understand that unrealised profits relate to the seller and to the computation of sellers income.

So this means if it is an upstream transfer that took place from sub to parent then that unrealised profit is attributed to the subsidiary. This unrealised profit futher upon recognition is considered in the calculation of non controlling interest.

When it is downstream transfer that takes place it relates only to the parent and hence no effect on NCI.

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