Consolidating intercompany inventory
Instead of using the Affiliate Chart Field, you could use the following accounts to identify the same transactions that were shown in the previous exhibit: An elimination set represents a related group of intercompany accounts that record both sides of each transaction between units.
In the case of the following intercompany receivable and payable relationship, you require only one elimination set if you use the Affiliate Chart Field: In consolidating the books of a subsidiary with those of the parent company, you credit the parent with the portion of the subsidiary that it actually owns and exclude what outside investors own.
Prerequisites can be the PO Document type as an intercompany type, andthe vendor as the IC vendor.
Then the GL account can be substituted by thefollowing two ways.
Finally, the consolidated business entities B and C are combined in the overall consolidation business entity A.
While there may be situations that require you to report gross consolidations (combining business unit ledger balances without eliminations), in most cases, you want to eliminate or cancel out the effect of intercompany transactions.
In the following example operating business units 1 and 2 are consolidated in consolidated business entity B and operating business units 3 and 4 are consolidated in business entity D.
Consolidated entity D is further consolidated with an additional operating business unit not directly related to business unit 3 and 4 to consolidated business entity C.
In Real Time scenarios, it’s not always the case that the PO Price is in sync with the Standard Product Cost and/or the Vendor invoice amount. Purchase Price Variance is generally the difference arising out of a GR and/or IR, as compared to the PO price. And hence it amounts to loss of 200 USD, which is booked to the PPV account.
Let’s say it has one material in the line item,whose standard product cost is 1000 USD. Point to note is that, GR generally happens at a standard price and the GR IR clearing always happens atthe PO price. What this means practically is, a goods whose price is 1000 USD in the books of the company, has been purchased at a higher price that is1200 USD.
The balance sheet for Consolidated Manufacturing lists its United States investment as an asset.
Consolidated Manufacturing also owns several buildings used by subsidiaries that record the payment of rent to corporate headquarters through intercompany accounts.
If the purchase price would have been less that the standard price of the product, a gain would have been recorded in the books.