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What is the impact on consolidated financial statements of upstream and downstream transfers? a
What is the impact on consolidated financial statements of upstream and downstream transfers?
a. No difference exists in consolidated financial statements between upstream and downstream
transfers.
b. Downstream transfers affect the computation of the noncontrolling interest's share of the
subsidiary's income but upstream transfers do not.
c. Upstream transfers affect the computation of the noncontrolling interest's share of the
subsidiary's income but downstream transfers do not.
d. Downstream transfers can be ignored since they are made by the parent company.
Expert Solution
If we agree that downstream transfers are sales by the parent to the sub, and upstream transfers are sales from the sub to the parent, then there could be a major reason for a difference.
Sales by the parent are recorded on the parent books at 100% of the transaction, but a sale by a sub which is NOT wholly owned by the parent will not have the effect of the entire transaction recognized by the parent. The minority owner interests in the sub (called non-controlling interests) will get their share of the profits from the transaction while the parent will not.
a. is out; b is backwards, d is out and therefore c must be correct.
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