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Consolidation and Intercompany Eliminations

Consolidation reports a parent company and its subsidiaries as one group: every member translated into the group currency, intercompany balances eliminated, the investment in each subsidiary eliminated against its equity, and minority shares shown separately. It is a reporting option on the Trial balance and Statements tabs, with one posting: the intercompany elimination journal into the group's elimination company.

Where to find it

Admin Panel → Finance:

  • Ledger & Finance — Consolidate the group on the Trial balance tab, Consolidated group on the Statements tab, and intercompany rules on the Set-up tab

Admin Panel → ERP - Setup:

  • ERP Setup — the Companies tab: parent, consolidation method, ownership and the elimination company

Setting up the group

  1. On ERP Setup, Companies, give each subsidiary its Parent company, Reports to the group in currency, Consolidation method and Owned by parent (%).
  2. Add an elimination company under the parent with Elimination company ticked.
  3. On each chart, give accounts the consolidation roles: Currency translation reserve, Non-controlling interests, Profit attributable to non-controlling interests, Intercompany differences (balances that disagree), Goodwill (arising on consolidation), and the investment roles Investment in subsidiaries (eliminated on consolidation) and Investment in associates (equity method), plus Share of results of associates where you have associates. Without a role, a placeholder line is used instead.
  4. On Set-up, add an intercompany rule for each pair of companies that trade, and post recharges through the Journals tab's Intercompany recharge.
  5. Record each investment in a subsidiary on the investment account with the subsidiary's company code as the line's counterparty. The date of that first line is treated as the acquisition date.
  6. Load closing and average rates on Set-up for every currency in the group.

Running the consolidation

  1. Choose the parent company at the top. You need read access to every member.
  2. On Trial balance tick Consolidate the group, or on Statements tick Consolidated group.
  3. Open How the group was consolidated under the report. It shows the Members of the group with method, group share and currency; the Currency translation (closing rate for the balance sheet, average rates for results) and the translation difference; what intercompany was eliminated; Acquisitions eliminated with goodwill or a bargain purchase; Non-controlling interests; and Associates (equity method).

The consolidation methods

  • Full consolidation: every line in full. A member owned under 100% shows the minority's share of its equity and result as non-controlling interests.
  • Proportional consolidation: every line multiplied by the group's share.
  • Equity method: the associate's lines are not added; the investment is carried at cost plus the group's share of results since acquisition.

Posting the elimination journal

The report applies intercompany eliminations on the fly. To put them in the books, so every group figure elsewhere includes them, someone with Post access to the elimination company presses Post the elimination journal in that company. The preview shows one ELIM journal dated at the report date. It is cumulative: only the change since the last elimination is posted, so running it again with nothing new posts nothing.

What goes wrong

  • "The intercompany balances disagree": one company booked a recharge the other did not, or at another amount. The difference is shown on the intercompany differences account until the missing entry is found. Post the elimination only once it is.
  • Consolidate the group is greyed out (no subsidiaries): the chosen company is not anyone's parent.
  • Translation looks wrong: a closing or average rate is missing for a month, so a fallback rate was used.

Worked example

A UK parent owns 100% of a UK trading company and 80% of a Dutch one, and has an eliminations company. The group controller runs the consolidated trial balance at 30 September. The notes show the Dutch company translated from euros, management recharges of 120,000.00 eliminated, goodwill from the Dutch acquisition, and 20% of the Dutch equity and profit as non-controlling interests. A recharge the Dutch company had not booked shows 4,000.00 on the intercompany differences account; once it is posted, the difference clears and they post the elimination journal.

Recommendations

  • Route every intercompany charge through a rule; consolidation eliminates only what the rules describe.
  • Clear intercompany differences before posting eliminations.
  • Give every consolidation role an account on the parent's and elimination company's charts.
  • Keep the eliminations company to group finance, with Post access for nobody else.