Elimination of Interunit Profit/Loss in Transferred Assets

Purpose

Interunit profits or losses are incurred when noncurrent assets (such as property, plant, and equipment) are sold by one consolidation unit to another consolidation unit within the same consolidation group (for example, a corporation).

Statutory accounting requirements and often management accounting policies require that the consolidated statements portray the group as a single entity. Hence, the sale of a noncurrent asset between two consolidation units needs to be treated as if the asset was merely moved from one plant to another. You can use this component to automatically eliminate such interunit profits and losses.

The acquiring consolidation unit (buyer) records the asset in its own balance sheet with the amount it paid to the supplying consolidation unit (seller), including incidental acquisition costs. This affects the amounts to be depreciated. The buyer also might use a method of depreciation that differs from the one used by the seller. This component enables you to automatically adjust the depreciation charges so that they are correct from the group’s point of view.

You also can employ transaction types to correctly disclose the assets in the group’s asset history sheet (or statement of changes in property, plant, and equipment).

Implementation Considerations

The following prerequisites must be met before you can implement this component:

  • Interunit profits or losses requiring elimination have been recorded in your group as a result of the sale of noncurrent assets.

  • The consolidation units involved in the transfer are both included in the consolidated financial statements.

  • You want the posting of the elimination entries to be automatic.

Integration

Task Hierarchy and Task Sequence

The entries posted by the task for eliminating interunit profits or losses (IPA task) are coded with posting level

The task hierarchy must contain only one IPA task. The IPA task must be run after the tasks that post with posting level 20, and before the task(s) for consolidation of investments.

Data Collection

In addition to the reported financial data of the subsidiaries, you need to collect the master data and the additional financial data of the assets.

To transfer this data to the consolidation system, you can use manual data entry or the methods available for automatic data collection (such as flexible upload, load from data stream, copy, and delete).

Period Initialization

You need a period initialization task to automatically adjust the additional financial data concerning interunit profits/losses for the new consolidation period (for example, a periodic depreciation charge).

Features

You can use this component to eliminate interunit profits and losses resulting from asset transfers, to record those assets correctly in the consolidated statements, and to adjust the depreciation charges of those assets.

This feature is enabled not only for two consolidation units, but also for supply chains comprised of three or more consolidation units.

The component can process the following types of transfers:

  • Transfers of assets capitalized within the consolidation group

  • Transfers of self-constructed assets

  • Sales of assets to third parties

When an asset is transferred within a consolidation group, you can decide whether the adjustments to the depreciation charges should use the settings of the seller or the settings of the buyer.

In the document type you can decide whether to record deferred taxes.

A log shows the results of the elimination of interunit profit/loss in transferred assets.

Constraints

  • The elimination of interunit profit/loss in transferred assets component calculates all figures in group currency and disregards any differences from currency translation.

  • The component does not calculate or disclose minority interests. This rather is done in consolidation of investments.

  • The component performs eliminations only if both the seller and the buyer of the asset are consolidated with the purchase method.

  • The component does not take into account any changes in group shares, nor any change in the accounting technique.

  • The component does not process writeups for noncurrent assets.

  • The component does not process 1:n, n:1, or m:n transfers of noncurrent assets. For example, this means that it does not process transfers in which one asset at the supplying consolidation unit turns into four assets at the purchasing consolidation unit.

  • The component does not process partial sales of noncurrent assets.

  • The component does not process supply chains in which a current (or inventory) asset turns into a noncurrent asset (such as property, plant, or equipment), or vice versa.

Example

You can use elimination of interunit profit/loss in transferred assets to portray the following accounting case:

Consolidation units A, B, and C belong to a single consolidation group. Company T is a third party that does not belong to the group.

Unit A constructs asset 1111 itself in the year 01. In year 02, it sells the asset to unit B. Unit A uses straight-line depreciation.

In year 04, unit B sells the asset to unit C. Unit B uses the declining-balance method of depreciation.

In year 08, unit C sells the asset to company T. Unit C uses straight-line depreciation.