Module V· Pro-Forma Combined FinancialsIntermediate
Question
How do you treat intercompany eliminations in a pro-forma combined income statement?
Answer
Eliminate sales and costs between buyer and target as if they were one company. Remove intercompany revenue, corresponding COGS / expenses, and any unrealized profit in inventory if goods remain unsold externally. The goal is to show only revenue and profit earned from third parties. Also consider whether eliminated intercompany arrangements need market-rate replacement post-close.