Example: Elimination Logic (SAP Library - Business Consolidation (SEM-BCS))

Example: Elimination Logic

The following assumptions are given in this standard case example:

Consolidation units A and B are trading partners and are consolidated using the purchase method.
Consolidation unit A sells goods to B, which incurs an interunit profit of 100 monetary units.
No currency translation differences are posted and no transfer of distribution costs takes place.
No transactions from prior periods are taken into account.
The tax rate for deferred taxes is 50%.

The following standardized data was reported by A and B in group currency:

Balance Sheet of A

Assets		Liabilities & Stockholders’ Equity
Fixed Assets	500	Stockholders’ Equity	700-
Current Assets	500	Liabilities	100-
		Retained Earnings	200-
	1000		1000-

Income Statement of A

Sales Revenue	1200
Expenses	1000-
Annual Net Income	200
Unappropriated Retained Earnings (Prior Year)	100
Appropriation of Retained Earnings	100-
Retained Earnings	200

Balance Sheet of B

Assets		Liabilities & Stockholders’ Equity
Fixed Assets	1200	Stockholders’ Equity	1000-
Current Assets	300	Liabilities	400-
		Retained Earnings	100-
	1500		1500-

Income Statement of B

Sales Revenue	2000
Expenses	1500-
Annual Net Income	500
Unappropriated Retained Earnings (Prior Year)	200
Appropriation of Retained Earnings	600-
Retained Earnings	100

The following entries are posted to eliminate the IU profit of 100 monetary units, with a tax rate of 50%:

The deferred income taxes that arise are cleared in subsequent periods.

After the elimination, the consolidated financial statements show the following data:

Consolidated Balance Sheet

Assets		Liabilities & Stockholders’ Equity
Fixed Assets	1700	Stockholders’ Equity	1700-
Current Assets	(500+300)-100 = 700	Liabilities	500-
Deferred Income Tax	50	Retained Earnings	-200+(-100)+50 = 250-
		Accrued Tax Provision	----
	2450		2450-

Consolidated Income Statement

Sales Revenue	= 1200+2000 =	3200
Expenses	= (-1000)+(-1500)+(-50) =	2550-
Annual Net Income	= 200+500-50 =	650
Unappropriated Retained Earnings (Prior Year)	= 100+200 =	300
Appropriation of Retained Earnings	= (-100)+(-600) =	700-
Retained Earnings	= (-200)+(-100)-50 =	250