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Eliminations in Consolidations in SAP BusinessObjects Financial Consolidation 7.5

Eliminations in Consolidations in SAP BusinessObjects Financial Consolidation 7.5

This document deals with the concept of Eliminations in Consolidations in BFC (BusinessObjects Financial Consolidation).

Eliminations in consolidations processing are the consolidation adjustments carried out in BFC for the purpose of presenting Consolidated Financial Statements.

Different types of eliminations adjustments are listed as below

1)      Internal provisions

2)      Elimination of internal gains/losses on transfer of assets

3)      Reciprocal accounts elimination

4)      Elimination of dividends

5)      Investment elimination

1)      Internal provisions:

The internal provisions will be eliminated from the B/S and the P&L. This will include both provisions recorded in the asset and the liabilities.

In case of below scenario, PQR Ltd has provided for Provisions of 500 out of which 100 is pertaining to Transaction with Inter Group Company.

Hence while preparing consolidated statements of Group, this Internal provision needs to be eliminated fully.

P & L Account PQR Ltd

Provision 500

Less: Elimination (100)

—————————–    400

Balance sheet PQR Ltd

Provisions          500

Eliminations      (100)

———————————–    400

2)      Elimination of internal gains/losses on transfer of assets:

When an asset is transferred within the group, the gain or loss must be eliminated, and the asset must keep its original value in the consolidated accounts.

This is manual and not an automated adjustment as this is unique and having a rare occurrence.

In case of below scenario, ABC Ltd has sold the asset to PQR Ltd worth 900 at 1000 and Gain of 100 is recognised in P & L Account.

PQR Ltd has recorded the asset at Transaction value of 1000.

Now the asset needs to be recorded at 900 as per Consolidation rules i.e. Internal gain on Tranfer of Asset needs to be eliminated.

So, here Clearing accounts will play role as This is Intercompany transaction and hence Gain on transfer of asset will be eliminated through clearing account and same way from Balancesheet of PQRLtd 100 will be reduced from Asset via clearing accounts  and asset will get recorded at 900.

Clearing accounts at group level will get balanced.

P & L Account ABC Ltd

Internal Gain on Trf of Asset   100

Elimination Internal Gain      (100)

—————————–           000

000

Balance sheet ABC Ltd (Seller)

Asset                           900

Sale Of Asset to PQR  (900)

———————————–      000

000

Balance sheet PQR Ltd (Buyer)

Asset               1000

Eliminations      (100)

———————————–      900

Clearing Account At Group Level

Elim Asset Account  Buyer        100

  1. Elim. P & L Account Seller         100

100

100

Manual Journal Entry will be posted through clearing accounts for eliminating gain on transfer of Asset at price higher than WDV.

3)      Intercompany accounts elimination:

Intercompany accounts are eliminated against dedicated clearing accounts defined for each of the group of accounts.

In case of below scenario, there is Intercompany transaction of Loan between ABC Ltd & PQR Ltd. ABC ltd has received loan of 100 from PQR Ltd.

So, from out of Total Loan of 500 of ABC Ltd this includes 100 as Intercompany Loan and hence 100 needs to be eliminated through Clearing Account as Intercompany Accounts elimination.

Same is the case with PQR ltd.

Clearing accounts at group level will get balanced.

Balance sheet ABC Ltd

Unsecured Loans 500

Clearing Account    (100)

———————————    400

Balance sheet PQR Ltd

Loans & Advances       900

Clearing Account        (100)

———————————–    800

Clearing Account At Group Level

Elim.Loans & Advances             100

Elim. Unsecured Loans              100

100

100

4)      Elimination of dividends:

Dividends paid and received within group entities will be automatically eliminated.

      In case of below scenario,ABC Ltd has provided for Dividend of 500 out of which 100 is pertaining to Transaction with Inter Group Company.

Hence while preparing consolidated statements of Group, this Internal provision needs to be eliminated fully.

P & L Account ABC Ltd

Dividends Paid             500

Less: Elimination         (100)

——————————-    400

P & L Account PQR Ltd

Dividends received      500

Less: Elimination       (100)

———————————–    400

5)      Investment elimination:

The investment elimination will impact both the owner and the held companies:

·        Owner Company (Parent): the investment values are eliminated against a dedicated link elimination account (Owner Company).

In the below Scenario, ABC Ltd has Subsidiary PQR Ltd and ABC Ltd is holding Controlling Interest 90% in PQR Ltd.

Now Investment in PQR Ltd needs to be eliminated for Consolidation.

Also, Subsidiary’s capital will be classified to Retained Earnings for the purpose of Calculating Minority Interest.

Like in the below case, If we assume holding % of ABC Ltd In PQR Ltd at 90%, 10% will be Minority Interest and this will come to 60 i.e. 10% of 600

The concept like Currency Translation, Calculation of Foreign Currency Translation reserve will be covered separately in Next document

Balance sheet ABC Ltd

Investmenet in PQR Ltd 500

Eliminations                  (500)

——————————    000

Balance sheet PQR Ltd

Share Capital                  100

Eliminations                  (100)

——————————    000

Retained Earnings               500

Reclassified Share Capital   100

———————————    600

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