However, if ABC or XYZ sells to an external business entity, then those revenues are part of the consolidated income statement.
Similarly, raw material purchases from external suppliers and salaries are also part of the consolidated income statement.
Otherwise, the loan might instead be considered an investment by the issuing business unit in the receiving unit, which can create other tax problems.
Based in Ottawa, Canada, Chirantan Basu has been writing since 1995.
His work has appeared in various publications and he has performed financial editing at a Wall Street firm.
In the following example operating business units 1 and 2 are consolidated in consolidated business entity B and operating business units 3 and 4 are consolidated in business entity D.
Consolidated entity D is further consolidated with an additional operating business unit not directly related to business unit 3 and 4 to consolidated business entity C.
The consolidated income statement reports all transactions with entities external to the combined parent and subsidiary entities.
For example, if company ABC acquires XYZ, then the combined income statement cannot include sales from ABC to XYZ, nor can it include payment for services from XYZ to ABC.
You use trees to define the relationships among business units in a consolidation, creating a separate consolidation tree for each configuration.
Included in each consolidation tree are the business units being consolidated and the to which eliminating journal entries are directed.
Intercompany loans are recorded in the financial statements of individual business units, but they are eliminated from the consolidated financial statements of a group of companies of which the business units are a part, using intercompany elimination transactions.