Elimination of intra-group transactions

Intra-group transactions are transactions between entities within a group of entities and that group is consolidated into one set of Consolidated Financial Statements. Intra-group transactions are not with third parties outside the scope of consolidation. In the Consolidated Financial Statements only balances and transactions remain with third parties outside the scope of consolidation.

In the consolidation process all company financial statements of each reporting entity in the scope of consolidation are first combined into a sub-consolidation, then all intra-group transactions are eliminated, sometimes leaving a small (not material) mismatch. Material mismatches have to be investigated and corrected in close collaboration with the two entities involved. Also Intra-company transactions (transactions with related companies outside the scope of consolidation) may be netted, showing only the remaining receivable or payable with that related company.

Intra-group profits Elimination of intra-group transactions

Any profits resulting from intra group transactions are eliminated from the consolidated accounts. (For example this would include fixed assets, stocks, investments etc. transferred within the group). Any profits resulting from intra group transactions are eliminated from the consolidated accounts. (For example this would include fixed assets, stocks, investments etc. transferred within the group). Elimination of intra-group transactions

These profits are from, for example, the sale of a finished product made in the consolidated manufacturing subsidiary A in country Z to importing subsidiary B in country X. Subsidiary A records it’s normal trading profit on such a sale. However, subsidiary B has not completed the sale to the third party/customer and has recorded the sale in its inventory against costs at the reporting date. Upon consolidation (presenting the financial statements of the parent entity and its subsidiary entities as a single economic entity in the consolidated financial statements of the parent entity) the profit recorded by subsidiary A has to be eliminated, at the consolidated level these items are still in inventory at subsidiary B.

Example eliminating Intra-group transactions Elimination of intra-group transactions

An live example of eliminating intra-group receivables and intra-group payables is shown below. The consolidation represents a Dutch holding company preparing consolidated financial statements for this holding company (the parent) and its subsidiaries (a sub-consolidation). The holding company and its subsidiaries are part of an USA listed multinational that also prepares consolidated financial statements of the worldwide group.

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