Assume that company P (parent) uses the equity method to account for its investment in company S (subsidiary). Company P purchases inventory items from company S. According to FASB’s guidance, the accountant must remove the inter-company profit from Company S’s net income. Determine if the process permanently eliminates the profit from the non-controlling interest or merely shifts the profit from one period to the next. Provide support for your rationale.
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this is done by inflating the cost of goods sold as technique to eradicate unverified profits from the buyers closing stock .In that the value of the unverified inter company profits from the closing stock are removed. this will make the returns to be pushed to the following financial period as the opening inventory .
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