IFRS 10

Intercompany
Eliminations

Generate consolidation elimination journal entries for intercompany transactions. Trading, unrealised profit, loans, dividends, and balance eliminations — each with Dr/Cr entries ready for the working paper.

IFRS 10.B86(c) requires that intragroup balances, transactions, income and expenses are eliminated in full. Unrealised profits and losses on intragroup transactions that are recognised in assets (such as inventory) are eliminated in full. IFRS 10.B86(d) notes that intragroup losses may indicate an impairment that requires recognition in the consolidated financial statements.

Group entities

Identify the parent and subsidiary involved in the intercompany transactions. Ownership percentage is used for NCI calculations.

Intercompany transactions

Toggle each transaction type to include it. Only active sections generate elimination entries.

A. Trading eliminations
Eliminate intercompany revenue and cost of sales
B. Unrealised profit in inventory
Eliminate profit on goods still held at year-end
C. Intercompany loan
Eliminate loan receivable/payable and interest
D. Dividend elimination
Eliminate dividend income received from subsidiary
E. Intercompany balance elimination
Eliminate trade receivables and payables between entities

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IFRS 10.B86(c): Intragroup balances, transactions, income and expenses shall be eliminated in full.

IFRS 10.B86(d): Intragroup losses may indicate an impairment that requires recognition in the consolidated financial statements.

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Consolidation eliminations: how they work

When preparing consolidated financial statements, all transactions between group entities must be eliminated so the group is presented as a single economic entity. This means intercompany revenue, expenses, receivables, payables, loans, dividends, and any unrealised profits on intercompany transfers must be reversed.

Trading eliminations

If Entity A sells goods to Entity B for €1,000,000, the group has not earned revenue from an external party. The consolidation entry debits revenue and credits cost of sales by the intercompany amount, removing the double-count from the group income statement.

Unrealised profit in inventory

If Entity A sold goods to Entity B at a 30% margin and €200,000 of those goods remain in Entity B's inventory at year-end, the group holds inventory at a cost higher than the original cost to the group. The unrealised profit of €60,000 (200,000 × 30%) must be eliminated by debiting cost of sales and crediting inventory.

Key terms

Intercompany Elimination Consolidation Adjustments Non-Controlling Interest Subsidiary Equity Method

Further reading

Frequently asked questions

What intercompany transactions must be eliminated on consolidation?
IFRS 10.B86 requires full elimination of intragroup balances, transactions, income and expenses. This includes intercompany sales and purchases (revenue and cost of sales), intercompany loans and interest, intercompany dividends, and intercompany receivables and payables. Any unrealised profits on goods still held within the group must also be eliminated.
How do you eliminate unrealised profit in inventory?
If one group entity sold goods to another at a profit, and those goods remain in inventory at year-end, the group has recognised profit that has not been realised through a sale to an external party. The elimination entry debits cost of sales (reducing group profit) and credits inventory (reducing it to the original cost to the group). The unrealised profit equals the remaining inventory multiplied by the intercompany gross profit margin.
What happens when the parent owns less than 100%?
When ownership is below 100%, a non-controlling interest (NCI) exists. All intercompany transactions are still eliminated in full, but certain effects (such as unrealised profit on upstream sales) may be allocated between the parent and NCI based on their respective ownership percentages. Dividends paid by the subsidiary are eliminated only to the extent of the parent's share.
What is an in-transit difference in intercompany balances?
An in-transit difference arises when the receivable recorded by one entity does not match the payable recorded by the other at the reporting date. Common causes include payments made but not yet received, goods shipped but not yet received, or timing differences in recording transactions. These differences must be investigated and resolved or disclosed before the consolidation is finalised.

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