Why must inventory transfers to related companies be eliminated in preparing consolidated financial statements? Why is there need for an eliminating entry when an inter-company inventory transfer is made at cost? Explain.© BrainMass Inc. brainmass.com March 5, 2021, 12:56 am ad1c9bdddf
Inventory transfers to related companies have to be eliminated in preparing consolidated financial statements because if they are left on the financial statements, the cost of goods sold and the revenue for the consolidated statements will both be overstated. The reason is because the inventory transfer is not a purchase ...
This solution explains why inventory transfers to related companies must be eliminated when preparing the consolidated financial statements. This solution also explains why there is a need for an eliminating entry when an inter-company inventory transfer is made at cost.