Upstream and downstream transactions

Learning objectives

• Distinguish upstream from downstream transactions between the investor and its associate.L2, L3
• Calculate the share of unrealised profit to be eliminated on assets still held.L2, L3
• Record the elimination of the unrealised profit.L3

Normative references

• IAS 28 §28Gains and losses resulting from upstream transactions (for example, sales of assets from the associate or joint venture to the investor) and downstream transactions (sales or contributions of assets from the investor to the associate or joint venture) are recognised in the investor's financial statements, including consolidated subsidiaries, only to the extent of unrelated investors' interests; the investor's share of those gains or losses is eliminated. In its published wording, the paragraph refers to assets that do not constitute a business as defined in IFRS 3: this restriction comes from the September 2014 amendments, whose mandatory application has been deferred to a date to be determined (para. 45C, earlier application permitted).

Original summaries of the paragraphs (reference register), never a quotation of the standard.

4 questions

• Alba SA holds {ownership} of Brise SA, an associate accounted for under the equity method. Brise sold goods to Alba (upstream transaction); at the reporting date, the inventory bought from Brise and still held by Alba contains an unrealised profit of {unrealised_profit} (case data). Calculate the unrealised profit that Alba's share leads it to eliminate.L2
• Alba SA holds {ownership} of Brise SA, an associate. Alba sold goods to Brise (downstream transaction); at the reporting date, Brise's inventory still contains a profit made by Alba of {unrealised_profit} (case data). Case convention: the elimination is presented as a debit to the share of profit of the associate, against the investment. Record the entry that eliminates Alba's share.L3
• Explain the difference between an upstream and a downstream transaction between an investor and its associate, then state why only the investor's share of the unrealised profit is eliminated.L3
• What should be remembered about the 2014 amendments to IAS 28 on the sale or contribution of assets between an investor and its associate or joint venture?L4