Please help with Discussion question.

Accounting
Tutor: None Selected Time limit: 1 Day

Must be 100% original work and make sense

  • 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.
Aug 1st, 2015

Thank you for the opportunity to help you with your question!

As per the equity method, actual recognition of the related profit must be delayed until the buyer- in this case P disposes of these goods finally to the ultimate consumer.

Hence the deferral of the reporting profit arising from the sale of this inventory is limited to the time that P ultimately sells away the goods. 

Please let me know if you need any clarification. I'm always happy to answer your questions.
Aug 1st, 2015

Please look at the question again.  Your answer don't make sense.  Thanks

Aug 1st, 2015

Please check the answer again,

The profit is being transferred from one period to the other since the recognition of the same is deferred to the time when P sells the goods to the ultimate consumer.


Aug 1st, 2015

Are you basing your answer per FASB's guidelines

Aug 1st, 2015

Yes.

Aug 1st, 2015

let me try and pass you a relevant link to confirm.

Aug 1st, 2015

Thanks

Aug 1st, 2015

Sample_Chapter_1.pdf 


Check page 20

Aug 1st, 2015

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Aug 1st, 2015
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Aug 1st, 2015
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