UK Consolidation : how to eliminate intercompany Revenue / fixed asset transaction


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Good morning,

We have some doubts about the way the interco transactions are eliminated through the consolidation process. We would like to get a confirmation with regard to the elimination of the interco transactions. To make it clear, I will take examples.

Company A and company B are under common control and are both consolidated by full consolidation method.
Company A provides drilling services to company B (drilling of an oil well).

Example 1 :

Company A raise an invoice for $2,000. In company A's accounting, this invoice is booked in revenue (debit customer / credit Revenue for $2,000).
In company B's accounting the invoice is capitalised (it is booked in asset). Journal posted : debit asset / credit vendor for $2,000.

Company A raised an invoice of $2000 but incurred costs of $1500. Therefore company A realised a profit of $500 on this intercos transaction.
Company B booked the full $2000 in asset.

At the end of the year, we have a revenue in Company A and an asset in company B.
How should we eliminate this interco transaction in the consolidation process ?

Exemple 2:
Company A raise an invoice for $2,000. In company A's accounting, this invoice is booked in revenue (debit customer / credit Revenue for $2,000).
In company B, as the oil well drilled is located in an oil field where company B own only 60%, the journal shown below is posted. Company B is the operator of the oil field. It has a partner that own 40% (this partner is not part of the groupe).

Company A raised an invoice of $2000 but incurred costs of $1500. Therefore company A realised a profit of $500 on this intercos transaction.

Postings in company B :
Debit : Asset $1200
Debit Partner receivable : $800
Credit : vendor A : $2000


Thank you for your help.
 
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Fidget

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What do you think the adjustments should be?
 
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Our actual treatment is the following.
Example 1 :
The Interco margin is 500.
We only eliminate this margin by the normal below :
Debit expense (P&L account) : 500
Credit asset : 500

Example 2 :
We eliminate only the margin that stays in the group :

Debit expense (P&L) : 300
Credit fixed asset : 300

300 = 500 x 60%

Please let me know if you deal with this kind of elimination and if our journals are right.
 

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