Tracking intercompany transactions between your mother company and your German subsidiary 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.
Intercompany eliminations (ICE) are made to remove the profit/loss arising from intercompany transactions. No intercompany receivables, payables, investments, capital, revenue, cost of sales, or profits and losses are recognised in consolidated financial statements until they are realised through a transaction with an unrelated party.
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.