ADMS 4520 Lecture : lecture_6 notes.docx

• School: York University
• Department: Administrative Studies
• Course: ADMS 4520
• Professor: all

Document Summary

However, in the consolidated financial statements: all intercompany sales or other intercompany income must be eliminated against the related purchase or intercompany expense, all intercompany balances (including receivables and payables) are eliminated against each other, income should be recognized only when it is earned in a transaction with an outsider. The selling company will generally have recorded a profit on the intercompany sales: these profits are unrealized because they are only within the combined entity, they are not objectively measurable, and are not with an arm"s length outsider, intercompany sales are like moving a coin from one pocket in a pair of pants to the other pocket: the pants still contain the same coin and no income has been earned, intercompany sales do not reflect the culmination of the earnings process, these unrealized profits must be eliminated net of related income taxes paid.