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Intercompany Elimination

Intercompany elimination is the process of removing transactions and balances between entities in the same group when preparing consolidated financial statements, so the group does not count business it did with itself.

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Group revenue
3 entities • Real-time
Holdings Pte Ltd1,240,000
Operations Sdn Bhd680,000
Ventures Pty Ltd910,000
Intercompany eliminations(120,000)
Consolidated group2,710,000

Why intercompany transactions are eliminated

When a group reports as a single economic entity, dealings between the entities inside that group are not real income or expense at the group level. If one subsidiary sells to another, the group has not earned anything; it has moved goods from one pocket to another. Consolidating without removing these transactions would overstate group revenue, costs, assets, and liabilities. Elimination strips them out, so the consolidated statements show only the group's dealings with the outside world.

Types of intercompany elimination

Intercompany sales and purchases

Trading between group entities, removed from group revenue and cost.

Intercompany loans and interest

The loan balances and the interest charged between entities.

Management fees and recharges

Costs one entity charges another for shared services.

Intercompany dividends

Dividends paid from one group entity to another.

Intercompany receivables and payables

The matching balances each entity holds against the other.

Unrealised profit on intercompany stock

Profit booked on a sale to another group entity, on stock the group still holds.

A simple worked example

A group cannot count a sale it makes to itself. Here is what that means on consolidation.

1
Entity A sells to Entity B
Entity A sells $100,000 of goods to Entity B in the same group.
2
Each entity books its own side
Entity A records $100,000 of revenue; Entity B records $100,000 of cost.
3
The group has made no outside sale
At group level, no sale to an outside customer has happened.
On consolidation
Entity A sells $100,000 to Entity B
Line Booked Eliminated Group
Group revenue+100,000(100,000)$0
Group cost+100,000(100,000)$0
Group profit impact$0
On consolidation you eliminate the $100,000 from group revenue and the matching $100,000 from group cost, so group profit is unaffected by the internal transfer.
One more case
Unsold stock

If Entity B has not yet sold the goods on, you also eliminate the profit Entity A booked, because the group cannot recognise profit on stock it still holds. That profit is recognised later, when the group sells the goods to an outside customer.

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Why eliminations are worth getting right

The risk
Overstated numbers
Miss one elimination and the whole group is off.
A red flag to boards and auditors
A consolidation that won't reconcile cleanly.
The most error-prone manual step
Every transaction has two sides, in two entities, matched by hand.
With Planir

Planir applies intercompany eliminations automatically, matching both sides of each transaction across entities from your live accounting data. The group view reconciles without the manual matching.

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Explore other use cases

Planir is built for the planning and reporting cycles that funded, governed, and multi-entity businesses actually run.

Multi-entity groups

Multi-entity consolidation

Consolidated financials across every entity, every accounting system, and every currency, with intercompany eliminations applied for you.

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Board governance

Board reporting

The financial foundation of every board pack, with variance analysis by dimension and forward projections your board can interrogate.

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Investor obligations

Investor reporting

The financial section of every monthly and quarterly investor update, generated from your live data.

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Common questions

What is intercompany elimination?
Intercompany elimination is the removal of transactions and balances between entities in the same group during consolidation, so the group does not count business it did with itself.
Why are intercompany transactions eliminated?
Because at group level, dealings between entities in the same group are not transactions with the outside world. Leaving them in would overstate group revenue, costs, and balances.
What are the main types of intercompany elimination?
Intercompany sales and purchases, loans and interest, management fees and recharges, dividends, intercompany receivables and payables, and unrealised profit on intercompany stock.
What is unrealised intercompany profit?
Profit one entity booked on a sale to another entity in the same group, on stock the group still holds. It is eliminated until the group sells the stock to an outside customer.

See consolidation with your own numbers

Connect your entities and Planir consolidates the group, eliminations included, so the numbers your board sees reconcile to source.

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