Intercompany Elimination
Intercompany Elimination rules are defined for elimination scenarios where the system is expected to reconcile all the Intercompany transactions and generate the offset differences, which helps organizations to perform Intercompany matching at each entity level. Intercompany elimination is one of the key activities for group consolidation, as transactions within different companies within a group need to be reconciled and reported, then eliminated at the group/subgroup level.
Purpose
Eliminates transactions such as sale of goods or services from one entity to another within the group. This means that the related revenues and cost of goods sold, and profits are all eliminated. There could be P and L transactions as well as offsetting interest expense and interest income being paid and received between entities within the group.
For any differences between these transactions, the system will autogenerate and post the Offset values to offset account defined. All these can be set to defined fields as per business requirement.
Prerequisites
Dataset, Account type and Flow type field are required field to be tagged model.
The Reference Sheet (a consolidation sheet) and Ownership Structure must be created before defining the rule details. These rules can be created directly from the Functional Area, under the Rules section.
[Image: may-2025-prerequisites.png]
Elimination Methods
How the elimination entry is posted is based on the Method of elimination:
Seller Method - By defining an intercompany elimination method as Seller, it is assumed seller-side transaction is correct value. Hence on eliminating seller and buyer transactions any difference between amount booked by seller and buyer is posted to buyer side.
| Action | Calculation | Posting |
|---|---|---|
| Seller data filtered | Elimination factor × -1 | Posted to Seller Account |
| Offset entry | Elimination factor × +1 | Posted to Buyer Account |
Buyer Method - By defining an intercompany elimination method as Buyer, it is assumed buyer side transaction is the correct value. Hence on eliminating seller and buyer transactions any difference between amount booked by seller and buyer is posted to seller side.
| Action | Calculation | Posting |
|---|---|---|
| Buyer data filtered | Elimination factor × -1 | Posted to Buyer Account |
| Offset entry | Elimination factor × +1 | Posted to Seller Account |
Offset Method - In case of Offset, neither Seller or Buyer amounts are given any priority and the difference between Buyer and Seller transactions is posted to separate offset account. Though Seller, Buyer, and Offset are maintained in one rule, these are considered as 2 separate entries.
| Transaction | Calculation | Posting |
|---|---|---|
| Seller data filtered | Elimination factor × -1 | Posted to Seller Account |
| Seller offset | Elimination factor × +1 | Posted to Offset Account |
| Buyer data filtered | Elimination factor × -1 | Posted to Buyer Account |
| Buyer offset | Elimination factor × +1 | Posted to Offset Account |
Note: All elimination calculations are based on Entity and Interco relationship as defined in the ownership structure.
How Intercompany Elimination Works
Relationship Filter - Data filter for Intercompany Elimination follows the same approach as Automatic Journals. With difference being Method details (Relationship) is maintained at the Data action level rather than the individual rule level.
Data Filtering - Intercompany Elimination rules will filter input data when Applicable to and Relationship conditions are met. This is like creating a join between Consolidation and Ownership model to apply filter criteria.
Incorporating in Consolidation Sheet
To incorporate Interco Elimination rules in the Consolidation sheet action, navigate to Sheet Details > Actions > Group Consolidation. Add matrix and configure by selecting Update Method as Rule, then select from the predefined Interco Elimination rules where the same reference sheet is used.
The system processes rules by filtering input data, checking applicability, calculating values, and posting results directly to the Consolidation Sheet. The execution status can be monitored in the Event Log.