2.11 Downstream Transaction

A downstream transaction is a parent company’s sale of goods or services to one of its subsidiaries. To the extent that the transaction involves goods that are sold for more (less) than the parent’s cost basis in such goods, a profit (loss) will be recorded in the parent-only financial statements. Any profit (loss) is deferred until the goods are ultimately sold to a third party. The elimination of 100 percent of all profit (loss) is attributed to the parent (see Section 6.4.1). Refer to Example 6-7 for an illustration of the accounting for downstream transactions in circumstances involving noncontrolling interests. Another example of a downstream transaction is a downstream merger. Refer to Section 7.1.2.3 for additional information on accounting for downstream merger transactions.