Incorporeal entities in buddhism I don't know anything in depth about Buddhism but as I figure there are three possibilities in life at it's end, either: 


the soul is released from the physical world and returns to where it originated from;
the soul remains in the physical world and is then passed on and contained within another living entity; or 
the soul remains in the physical world and is not contained within any physical body. 


The latter I believe I would not favour.

If I am correct about my deduction then the latter entity would be incorporeal.
Buddhism as much as I know is based upon transference of souls to other living entities so how does it deal with the possible existence of incorporeal entities or does it refute the idea?

There is one possibility at the expense of the humanity of things there could be no soul god forbid.
According to Milindapanha 3.5.5, one is reborn without the need for a transmigrating soul:


  The king asked: "Venerable Nagasena, is it so that one does not
  transmigrate (saṅkamati) and one is reborn (paṭisandahati)?"
  
  "Yes, your majesty, one does not transmigrate and one is reborn."
  
  "How, venerable Nagasena, is it that one does not transmigrate and one
  is reborn? Give me an analogy."
  
  "Just as, your majesty, if someone kindled one lamp from another, is
  it indeed so, your majesty, that the lamp would transmigrate from the
  other lamp?"
  
  "Certainly not, venerable sir."
  
  "Indeed just so, your majesty, one does not transmigrate and one is
  reborn."
  
  "Give me another analogy."
  
  "Do you remember, your majesty, when you were a boy learning some
  verse from a teacher?"
  
  "Yes, venerable sir."
  
  "Your majesty, did this verse transmigrate from the teacher?"
  
  "Certainly not, venerable sir."
  
  "Indeed just so, your majesty, one does not transmigrate and one is
  reborn."
  
  "You are clever, venerable Nagasena."


Ven. Narada Mahathera wrote here about hungry ghosts:


  Peta-yoni (pa + ita) lit., departed beings, or those absolutely devoid
  of happiness. They are not disembodied spirits of ghosts. They
  possess deformed physical forms of varying magnitude, generally
  invisible to the naked eye. They have no planes of their own, but live
  in forests, dirty surroundings, etc.


Milindapanha 3.5.6 states:


  The king asked: "Venerable Nagasena, is a soul to be found?"
  
  The elder replied: "According to ultimate reality, your majesty, a
  soul is not to be found."
  
  "You are clever, venerable Nagasena."