Thus, profit/loss will be visible to the parent’s shareholders only, and not to the minority interest’s.

: This is a transaction between two subsidiaries of the same company.

recording consolidating adjustment journal entries-23

The total amount of unrealised profits/loss to be eliminated in intercompany transactions does not vary regardless of whether the subsidiary is wholly-owned (non-controlling interest, NCI, does not exist) or partially owned.

However, if the subsidiary is partially owned (i.e., NCI exists), the elimination of such profit/loss may be allocated between the majority and minority interests.

Intercompany transactions must be adjusted correctly in consolidated financial statements in order to show their impact on the consolidated entity instead of its impact on the parent or subsidiaries solely.

Understanding how intercompany transactions are recorded in each concerning entity’s journal entries and the impact of the transaction on each entity is necessary to determine how to adjust intercompany transactions in the consolidated financial statement.

Tracking intercompany transactions is perceived as one of the most common problems with financial consolidation Intercompany transactions are transactions that happen between two entities of the same company.

Not adjusting intercompany transactions results in consolidated financial statements that do not offer a true and fair view of the group’s financial situation.

If you don’t like reading, you can skip to the end of this article and watch my video.

If you’d like to revise a theory first, then please read my summary of IFRS 3 Business Combinations and IFRS 10 Consolidated Financial Statements, both of them contain video in the end.

Please note here that in the above statements of financial position, .

I use it this way because for me it’s easier to verify and identify mistakes, but it’s up to you.

Inventory sales in downstream transactions (from parent to subsidiary) are accounted for as internal transfers between departments of a single entity: Financial consolidation is more than just adding up numbers from separate financial statements.