Example: Complex Attribute Eliminations
In this example, all subsidiaries are trading with each other, with three levels of ownership.
Here is the organization structure of the total company:
- Crawford's Sports Unlimited
- Graham's Fishing Equipment
- Winston Bait
- Poles for Everyone
- Lecter's Fine Sportswear
- Raven & Stagg Fabrics
In standard accounting practices, activities between Winston Bait and Poles for Everyone would typically eliminate in Graham's Fishing Equipment. In
Consolidation
, a level cannot be an elimination level and an intercompany trading partner at the same time.Likewise, trading activities between Graham's Fishing Equipment and Lecter's Fine Sportswear are only possible if neither is flagged as an elimination level for its child companies.
Graham's Fishing Equipment and Lecter's Fine Sportswear could conceivably eliminate at the Crawford's Sports Unlimited level, but when Graham's Fishing Equipment needs to report its own consolidations, they'll be left without a way to do so.
In short: a parent subsidiary can only handle eliminations for its children if they themselves are not acting as parents to a further level of subsidiaries.
The Solution
The way to handle a setup like the one above is by creating
special elimination levels for the subsidiaries further down the chart:- Crawford's Sports Unlimited - Crawford's Eliminations.
- Virtual subsidiary - Graham's Eliminations
- Graham's Fishing Equipment
- Winston Bait
- Poles for Everyone
- Virtual subsidiary - Lecter's Eliminations
- Lecter's Fine Sportswear
- Raven & Stagg Fabrics
Here's a summary of where the different transactions are eliminated:
Trading Partner 1 | Trading Partner 2 | Elimination Level |
|---|---|---|
Winston Bait | Poles for Everyone OR Graham's Fishing Equipment | Graham's Eliminations |
Poles for Everyone | Graham's Fishing Equipment | Graham's Eliminations |
Raven & Stagg Fabrics | Lecter's Fine Sportswear | Lecter's Eliminations |
Raven & Stagg Fabrics | Poles for Everyone OR Winston Bait OR Graham's Fishing Equipment | Crawford's Sports Unlimited |
If any subsidiary is trading with Crawford's Sports Unlimited, there needs to
be a level above Crawford's Sports Unlimited, which would hold the eliminations
between Crawford's Sports Unlimited and the descendants this organization trades
with.