What is the difference between a direct intercompany transactrion and an indirect intercompany transaction? How does the difference effect reporting them on a consolidasted statement?
These are internal transactions between two correlated companies which file consolidated tax returns or financial statements. These transactions take place between two companies aiming to achieve specific goals that are dependent on the operations of each of the companies. As an example, when a supplier sells products to a retailer, this is an intercompany transaction.
This transaction takes place between two units of the same entity and is aimed at promoting great business relations. It is a fact that major economic transactions involve the relation of the two unrelated entities in the market, but the relations of companies of the same entities is rampant in the present business world. The intercompany transactions undertaken between the companies involve items such as; the declaration and payments of dividends, the purchase and sales of assets as well as lending and borrowing (Intercompany Transactions, n.d).
Direct intercompany transaction:
This kind of business transaction occurs when the subsidiaries in the combined business operation have open transactions with the organization that has power to control the combined business operations. A subsidiary is an entity in the transaction that is controlled by the parent organization. In this business interaction, direct investments links are established between the subsidiaries and the main ...
The differences in direct and indirect transactions are examined.