| Course | ACC 405 Advanced Accounting |
|---|---|
| Module | Module 5 |
| Paper type | undergraduate consolidation assignment on intercompany inventory and land transfers |
| Length | About 1,040 words, 6 pages |
| Format | APA 7 student paper |
| School | Southern New Hampshire University |
| Program | BS Accounting |
| Updated | October 2026 |
Free sample paper for ACC 405 Module 5
Selling to Ourselves: Eliminating Downstream and Upstream Inventory Profit and an Intercompany Land Gain
[Student Name]
Southern New Hampshire University
ACC 405: Advanced Accounting
Module Five Assignment
[Instructor Name]
[Date]
The organization, setting and figures below are a composite written as a model document. No real employer, client, colleague or patient is described.
Selling to Ourselves: Eliminating Downstream and Upstream Inventory Profit and an Intercompany Land Gain
Introduction
In its second year of owning 80 percent of the Vermont sugarhouse, the New Hampshire maple company began trading with it. It sold the sugarhouse's farm store branded syrup, candy and glass bottles. The sugarhouse, which produces more bulk syrup than it can bottle, sold its surplus to the parent. And the parent sold the sugarhouse a 40-acre parcel of maples adjoining its land. From the group's perspective, none of these created revenue or profit: a company cannot earn income by selling to itself. This assignment eliminates the effects of the transactions in the year-two consolidation and allocates them correctly between the parent and the noncontrolling interest (Hoyle et al., 2021).
Direction and Size of Each Transfer
Table 1. Intra-Entity Transfers in Year Two
| Transfer | Direction | Sales price | Gross margin | Still held at year end | Unrealized profit |
|---|---|---|---|---|---|
| Branded syrup, candy and bottles to the farm store | Downstream | $400,000 | 30% | 25% | $30,000 |
| Bulk syrup to the parent's bottling line | Upstream | 900,000 | 20% | One third | 60,000 |
| 40-acre sugarbush parcel | Downstream | 260,000 | Gain on book value of $180,000 | All | 80,000 |
Unrealized inventory profit is the gross margin on goods still held by the buyer: $400,000 times 30 percent times 25 percent is $30,000, and $900,000 times 20 percent times one third is $60,000. The land gain is fully unrealized because the parcel is still inside the group.
Worksheet Eliminations
Table 2. Intra-Entity Eliminations, Year Two
| Entry | Debit | Credit | Purpose |
|---|---|---|---|
| TI | Sales $1,300,000 | Cost of goods sold $1,300,000 | Remove intra-entity sales and purchases |
| G | Cost of goods sold $90,000 | Inventory $90,000 | Defer unrealized profit in ending inventory |
| TL | Gain on sale of land $80,000 | Land $80,000 | Return land to the group's original cost |
Entry TI removes the full $1,300,000 of sales between the companies, which would otherwise inflate both consolidated revenue and cost of goods sold. Entry G restores the ending inventory to the group's original cost; the $90,000 increase in cost of goods sold reduces consolidated gross profit by the profit that has not yet been earned from outsiders. Entry TL removes the parent's $80,000 gain and reduces land to the $180,000 the group originally paid. Because the sugarbush will be held for tapping indefinitely, this entry will be repeated, against beginning retained earnings, in every future consolidation until the land is sold outside the group.
Allocating the Effects to the Noncontrolling Interest
The noncontrolling interest owns 20 percent of the sugarhouse, so it shares in the sugarhouse's income but not the parent's. The downstream deferrals, $30,000 of inventory profit and the $80,000 land gain, arose in the parent's income and are absorbed entirely by the parent. The upstream deferral of $60,000 arose in the sugarhouse's income and must be shared.
Table 3. Noncontrolling Interest in Year-Two Income
| Item | Amount |
|---|---|
| Sugarhouse net income | $700,000 |
| Less excess amortization ($35,000 buildings, $80,000 customer relationships) | (115,000) |
| Less unrealized upstream profit in ending inventory | (60,000) |
| Realized, adjusted subsidiary income | $525,000 |
| Noncontrolling interest, 20% | $105,000 |
| Parent's share, 80% | $420,000 |
The parent's equity method income from the sugarhouse is its $420,000 share less the downstream deferrals it alone absorbs, $30,000 and $80,000, or $310,000. That figure, eliminated on the worksheet as equity income, keeps the parent's separate net income equal to consolidated net income attributable to it (Fischer et al., 2016).
Why the Full Profit Is Eliminated
Students often ask why the whole $60,000 of upstream profit is eliminated when the parent owns only 80 percent of the seller. The answer is that consolidated statements present the group as a single entity, including the noncontrolling interest. The group as a whole has not earned that profit from outsiders, so none of it can appear in consolidated income. Ownership determines only who bears the deferral, which is why $12,000 of it reduces the noncontrolling interest's share and $48,000 the parent's (Financial Accounting Standards Board, 2007).
How the Deferrals Reverse
The inventory deferrals reverse in year three, when the farm store sells the remaining branded syrup and the parent bottles and sells the remaining bulk syrup. In that year's worksheet, beginning retained earnings, or for the upstream portion the beginning noncontrolling interest, is debited and cost of goods sold credited, increasing year-three consolidated income by $90,000. The upstream reversal will then increase the noncontrolling interest's share of year-three income by $12,000. The land gain does not reverse until the parcel is sold outside the group; if the sugarhouse ever sold it to a third party, the $80,000 deferred gain would be recognized then, together with any further gain.
A Note on the Parent's Separate Books
None of these eliminations appears in either company's own ledger. The parent's books still show $400,000 of sales to the sugarhouse and an $80,000 gain on land, and the sugarhouse's books show $900,000 of sales to the parent and land at its $260,000 purchase price. That is correct for each company's separate statements, which a lender to the sugarhouse alone might request. It also means the consolidation team must track every intra-entity transfer through a schedule maintained outside the ledgers, recording who sold what to whom, at what margin, and how much remains on hand at each year end. Without that schedule, next year's reversals cannot be computed, and the land deferral, which may last decades, is easy to lose. A practical control is a monthly report of intra-entity sales from both companies' systems, matched so that each sale on one side has a purchase on the other.
Effect on Consolidated Results
Compared with simply adding the two companies' statements, the eliminations reduce consolidated revenue and cost of goods sold by $1,300,000 each, reduce gross profit by $90,000 and remove an $80,000 gain, for a $170,000 reduction in consolidated net income before allocation. Of that reduction, $12,000 falls on the noncontrolling interest and $158,000 on the parent. Neither company's own books change; the adjustments exist only on the worksheet, which is why they must be recomputed every year.
Conclusion
Three intra-entity transfers required eliminating $1,300,000 of sales and purchases, $90,000 of unrealized inventory profit and an $80,000 land gain. The downstream deferrals are borne by the parent alone; the $60,000 upstream deferral is shared, reducing the noncontrolling interest's share of income to $105,000. The inventory deferrals reverse next year, and the land gain stays deferred until the parcel leaves the group.
References
Financial Accounting Standards Board. (2007). Noncontrolling interests in consolidated financial statements (Statement of Financial Accounting Standards No. 160). Author.
Fischer, P. M., Tayler, W. J., & Cheng, R. H. (2016). Advanced accounting (12th ed.). Cengage Learning.
Hoyle, J. B., Schaefer, T. F., & Doupnik, T. S. (2021). Advanced accounting (14th ed.). McGraw Hill.
What the ACC 405 Module 5 instructions ask for
The Module Five assignment in ACC 405 usually adds intra-entity transactions to a consolidation. Expect inventory sold between parent and subsidiary, some still on hand at year end, and often a transfer of land, equipment or other long-lived assets at a gain. You are asked to eliminate intra-entity sales and purchases, defer unrealized gross profit in ending inventory, defer gains on assets still held within the group, recognize prior deferrals that have been realized, and adjust the noncontrolling interest's share of income for upstream profits. Identify the direction of each transfer first, compute each deferral in a schedule, prepare the worksheet entries and explain how each adjustment affects consolidated income and the noncontrolling interest.
How this ACC 405 Module 5 intercompany transactions assignment example is built
The sample covers three transfers in year two. Downstream, the parent sold the sugarhouse $400,000 of syrup and bottles at a 30 percent margin; a quarter remains in the farm store's stock, so $30,000 is unrealized. Upstream, the sugarhouse sold the parent $900,000 of bulk syrup at a 20 percent margin; a third remains, so $60,000 is unrealized and shared with the noncontrolling interest. The parent also sold a 40-acre sugarbush to the sugarhouse for $260,000, recording an $80,000 gain. Worksheet entries eliminate $1,300,000 of sales, $90,000 of inventory profit and the land gain. The noncontrolling interest's share of income is $105,000, reflecting the upstream deferral.
Where the ACC 405 Module 5 rubric puts the points
Rubrics for the ACC 405 intercompany assignment typically score the elimination of intra-entity sales, the computation of unrealized profit, the land or asset transfer, the allocation of effects to the noncontrolling interest and the explanation. Top papers distinguish downstream from upstream transfers, assign upstream deferrals to the noncontrolling interest in proportion to its ownership, eliminate the full unrealized profit regardless of ownership percentage and explain when each deferral reverses. Graders reward a schedule that ties each deferral to its source. Common deductions include eliminating only the parent's share of unrealized profit, charging downstream deferrals to the noncontrolling interest and forgetting that intercompany land gains remain deferred until the land leaves the group.
ACC 405 Module 5 help: the mistakes that cost points
Intercompany problems most often go wrong on direction: downstream profits belong to the parent and do not change the noncontrolling interest, while upstream profits sit in the subsidiary's income and are shared. Another frequent error is eliminating only the parent's percentage of unrealized profit; in consolidation the whole profit is removed. Students also forget to recognize last year's deferred profit when the goods are sold this year. If your problem includes depreciable assets transferred at a gain, intercompany bonds or a multi-year sequence, the same logic applies and we can lay out the schedules from your figures. Draw a small arrow for each transfer before computing anything; direction decides who absorbs the deferral.
Get ACC 405 Module 5 written to your instructions
Send the ACC 405 Module 5 problem and instructions. The paper will identify the direction of each transfer, compute unrealized profits, prepare the worksheet eliminations, allocate effects to the noncontrolling interest and show how each deferral reverses. Delivery is usually two days out, with no fee on your first request. The paper above is an original model document written by our desk, not a submitted student paper and not an official Southern New Hampshire University document.
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ACC 405 Module 5 questions, answered
Where can I find a free ACC 405 Module 5 intercompany transactions sample?
This page carries a full ACC 405 Module 5 assignment eliminating downstream and upstream inventory profit and an intercompany land gain.
What is the difference between downstream and upstream sales?
Downstream sales go from parent to subsidiary; upstream sales go from subsidiary to parent. Upstream profits are in the subsidiary's income and affect the noncontrolling interest.
Is all unrealized intercompany profit eliminated in consolidation?
Yes. The full unrealized profit is eliminated regardless of the ownership percentage; only its allocation between parent and noncontrolling interest depends on direction.
When is a deferred intercompany land gain recognized?
When the land is sold to an outside party. Until then, the gain is eliminated in every year's consolidation.
How does upstream unrealized profit affect the noncontrolling interest?
It reduces the subsidiary's realized income, so the noncontrolling interest's share of income is computed on income after the deferral.