What percentage of unrealized profit from upstream sales is eliminated before the sale to a third party?

The elimination of unrealized profit from upstream sales is based on the accounting principle that requires intercompany profits to be eliminated when consolidated financial statements are prepared. In the context of upstream sales, which occur when a subsidiary sells goods or services to its parent company, the entire amount of unrealized profit must be eliminated to ensure that the consolidated financial statements reflect only those profits that have been realized through transactions with external parties.

Since unrealized profits on upstream sales have not yet been realized by the parent company—meaning they have not been sold to third parties—recognizing this profit would overstate the financial position and performance of the consolidated entity. Therefore, 100% of the unrealized profit from these upstream sales must be eliminated before the sale to a third party is accounted for in the financial statements.

Understanding this concept is crucial for accurate financial reporting, as it helps prevent the distortion of income and ensures that stakeholders receive a true representation of the company's financial performance.