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More 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

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.

 

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