Differnece between one sided and two sided elimination

[Former Member]

Hi,

I've a basic question. Could you explain what is the difference between these two types of eliminations. I understand that generally we use one sided elimination for P&L and two sided elimination for BS is that true?

Regards,

SSC

*points will be rewarded to suitable answers.

[dan_sullivan]

In either case, the results from reporting are the same. With 1-sided, there is only one single set of accounts for which all balances with trading partner are eliminated with the offset to the differences account.

With 2-sided there are two sets of accounts for which the balances with trading partner are eliminated with the offfset to the differences account.

With 2-sided there are a few more options regarding which company receives the differences. But in all cases the reported results are the same.

[Former Member]

Hi Dan,

Thanks for clarifying. But still not very clear about 'one set of accounts'. If I've to eliminate sales against purchases then how will I put them in one set?

Regards,

SSC

[dan_sullivan]

When you configure a 1-sided elimination method, there is only one place to include items. With the configuration of 2-sided there are two places to include items.

For 1-sided the sales and purchases are in the same "set". For 2-sided, sales is in one "set" and purchases in another.

[Former Member]

Thanks Dan,

Could you also throw some light on when should we use which method?

Best Regards,

SSC

[dan_sullivan]

Some prefer to separate AR and AP into separate sets with 2-sided elim where difference can go to company with AP, as this tends to be where timing causes the AP to not be as up-to-date as the AR, which is usually recorded first.

My preference is to use 1-sided for all eliminations as it is easier and the reported results are the same in either case.

[Former Member]

I would disagree with Dan.

The results of one & two-sided eliminations might be very different.

2-sided elimination is very useful when the Group has all information. For example, A/P from one side (company A to B) and A/R from another one (company B to A). Very often amounts shown by the companies in such cases are different. And this is my strong opinion that using of 1-sided elim in such cases is NOT acceptable. Here must go a reconciliation first (not only on a level of SEM-BCS, but also on a level of mutual comparing of figures by accountants from both companies). Otherwise, in many cases it will distorts the fin results.

With 1-sided elim you always have an elimination. With 2-sided, depending on the strategy of assigning difference, the result may differ significantly.

So, for eliminations in the B/S, in the most cases I prefer 2-sided ones.

For elims in P&L, in many cases you simply HAVE TO use 1-sided eliminations just because you don't have information about the partner on the second part of the transaction.

The example: it's very easy (and useful) to have breakdown by partners on your sales accounts.

But, in case of cost (COGS, COGM etc) accounts, in 99% of all cases you simply have no such information. And it's not practical to maintain it. Imagine, that during of writing off of either cost of goods sold or production expenses you always should break the expenses by the companies from which you purchased the materials/services bought (the real nightmare for accountants!).

[dan_sullivan]

Eugene,

I would appreciate your further clarification regarding how a consolidated balance sheet and P&L would differ with 2-sided versus 1-sided from a purely consolidated reporting perspective.

I realize the posting differ between 1-sided versus 2-sided elimination, but I have never seen any differences in the reported results. Are you saying that the reported results would differ?

Thanks.

[Former Member]

Ok, Dan.

Here we go.

The main purpose of consolidation is to eliminate turnovers and balances within the Group, right?

When you use 1-sided elimination, the elimination itself ALWAYS takes place, if Selection 1 is satisfied, regardless of the data provided by ConsUnit-partners.

In case of 2-sided elim, it's not true. Elimination occurs always ONLY IN CASE of exact match of figures provided by a ConSUnit and a ConsUnit-partner.

Where are the same results?

It's even more interesting for 2-sided elims when there is no exact match.

For example, we may or may not use limits - again, difference in results.

The strategy of attributing differences does also play its role. -- It either may spoil the whole B/S or change nothing - see here an example:

Convinced?

[Former Member]

Hi Eugene,

Could you kindly clarify the below a bit more: -

'For elims in P&L, in many cases you simply HAVE TO use 1-sided eliminations just because you don't have information about the partner on the second part of the transaction.'

If we don't have the TP then at what level in the org. hierarchy the cost side (where we don't hv TP information) will be eliminated?

Best Regards,

SSC

[Former Member]

Hi SSC,

In the mentioned case we have TP on the revenue side. This TP (in most of cases) is used in 1-sided elimination (expenses side).