October 3, 2022

Cost Method Investment – Intra-Company Sales of Inventory Treatment

Hi Going-Concern Users,

I couldn’t find any guidance on how to treat the unrealized profit on intra-company inventory sales when the investment is accounted for cost method. There are lots of resources online on accounting treatment of the unrealized profit when the investment is accounted for equity or consolidation method. The unrealized profit is deferred because the seller is deemed to haveĀ  a stake in the unsold inventories held by the buyer due to the investment relationship. The same logic seems to also apply to transactions when the investment is accounted for cost method. What will be the journal entry? If it doesn’t, what’s the reasoning?

Please kindly advise.

Thank you very much.

Warm regards,

Edison W.

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