Intercompany Elimination and Consolidation

Introduction

Oracle Financial Services Climate Change Analytics Cloud Service enables users to perform elimination and consolidation of intercompany balances in accordance with widely accepted accounting frameworks and standards.

For the elimination and consolidation to perform effectively, users need to ensure that legal entity hierarchy is properly set up within the database. Essentially, there needs to be a proper mapping of holding or parent and subsidiary or child companies.

The application will eliminate all intercompany balances for subsidiary/child entities falling with the hierarchy of holding/parent entity and aggregate all other third-party balances to present a consolidated result.

The following illustration depicts the legal entity hierarchy and displays the consolidation logic:

Example

In this section, we will look at how intercompany balances will be eliminated and third-party balances will be aggregated to produce a consolidated result.

In the below legal entity hierarchy, we can see that there is a regional holding/parent company called XYZ Europe. It has two subsidiaries namely XYZ UK LLC and XYZ France Ltd. Further down, UK LLC has two subsidiaries called XYZ UK Trading and XYZ UK Banking.

Figure 10-17 Example of Elimination of Inter Company Balances

The following table displays the standalone entity balances as of 1st January 2023. Since this application only stores the receivables leg of a transaction (i.e., Investments), only they are considered here:

Table 10-7 The Standalone Entity Balances as of 1st January 2023

Legal Entity	Balance	Intercompany (IC) Balance	Receivable from	Third-party Balance
XYZ Europe	200	75	XYZ UK LLC	125
XYZ UK LLC	200	50	XYZ UK Trading	150
XYZ France Ltd	100	0	N/A	100
XYZ UK Trading	50	0	N/A	50
XYZ UK Banking	75	0	N/A	75
Total	625	125		500

For a consolidation that is performed at XYZ Europe level, the following set of intercompany balances will be eliminated and consequently, only third-party balances will be aggregated to arrive at a total consolidated value of 500, made up of 125, 150, 100, 50 and 75 from the five legal entities within the hierarchy of XYZ Europe.

Table 10-8 Intercompany Balances that will be Eliminated

Legal Entity	Intercompany (IC) Balance eliminated
XYZ Europe	75
XYZ UK LLC	50

Legal Entity values after Inter-Company Elimination (excluding Asian Companies)

The date used is 31 January, 2023.

Table 10-9 Legal Entity values after Inter-Company Elimination

Legal Entity (LE)	Standalone LE Value
XYZ LLC	200
XYZ Europe	180
XYZ France	200
XYZ UK	90