Interunit Eliminations and Reconciliations

Purpose

Interunit elimination

Interunit (IU) elimination enables you to eliminate business relationships, based on the trade of goods and services, between the consolidation units within a consolidation group. The business relationships to be eliminated exist between a pair of consolidation units, such as:

Incurred from the business relationship:

To be used for the interunit elimination:

Payables & Receivables

Elimination of IU payables and receivables

Revenue & Expense

Elimination of IU revenue and expense

Revenue & Expense from Investment Holdings

Elimination of investment income

From the group’s perspective, these business relationships must be eliminated. For, when viewing the corporate group as a single entity, the group cannot have, for example, receivables and payables from and to itself.

You can use monetary values or quantities as the basis for eliminating business relationships.

Reconciliations

Prior to running interunit eliminations, you can use reconciliations to determine any elimination differences without having the system post elimination entries. By doing this, you can correct posting errors in the reported financial data, or manually post standardizing entries.

Implementation Considerations

Interunit elimination is one of the major tasks within the overall consolidation process.

This component must be chosen if you want to perform IU eliminations using automatic posting functions. If you do not choose this component and still want to perform IU eliminations, you can use manual posting.

Integration

Before executing the tasks for interunit elimination, you need to have collected the reported financial data, posted the standardizing entries, and performed currency translation.

You can execute the reconciliation tasks immediately after you have collected the reported financial data or after you have posted the standardizing entries.

Example Example

In the consolidation monitor, the sequence of the tasks might look like this:

Consolidation Monitor, Tasks:

End of the example.

  • Balance carryforward

  • Entry of reported financial data

  • Validation of reported financial data

  • Reconciliation for interunit payables/receivables

  • Reconciliation for interunit revenue and expense

  • Reconciliation for investment income

  • Standardizing entries

  • Currency translation

  • Elimination of interunit payables and receivables

  • Elimination of interunit revenue and expense

  • Elimination of investment income

  • Reclassification

  • Validation of consolidated data

A task for interunit elimination (for example, elimination of interunit payables/receivables) and its corresponding reconciliation task are both based on the same method .

Features

To enable the system to eliminate group-internal business relationships, you need to define the relevant financial statement items along with the partner assignments. The system uses these partner assignments to recognize the business relationships between consolidation units.

You define tasks and methods for IU eliminations in Customizing.

  • Tasks represent accounting activities, such as the elimination of IU payables and receivables or revenue and expense. You can define as many tasks as required to match your specific accounting procedures.

  • Methods determine which financial statement items are cleared and how the system posts any elimination differences that may arise.

Reconciliation: Recognition of Elimination Differences in Advance

You can identify any existing differences prior to posting elimination entries by running a reconciliation task in the consolidation monitor. The system shows you the differences, but does not post any entries.

Elimination entries: Calculation and Posting of Differences

The posting of elimination entries is also run as a task in the consolidation monitor. Using the method assigned to the task, the system determines the values to be eliminated for each pair of consolidation units, and automatically posts the entries.

The system posts any differences to the differential accounting objects, which you define in Customizing.

You can:

Constraints

  • If you use period accounting (as opposed to cost of sales accounting), you also need to perform group transfers (from Sales Revenue to Changes to Inventory, or to Other Capitalized Goods on Own Account), in addition to the eliminations. Such transfers are not a part of interunit elimination. Instead, you can use the reclassification activity (see the example for this ).

  • The elimination of corporate tax credits is not a part of the elimination of investment income. Instead, you can use the reclassification activity (see the example for this ).