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Elimination entries on consolidation

How to eliminate inter company transactions when between the P&L and balance sheet

On consolidation I have come across the scenario where the parent will be charging the sub an amount for legal fees. These fees will be revenue income in the parent and are to be capitalised in the sub as they relate to an asset under construction. 

 

How do I eliminate this transaction on consolidation? I need to take the income out of the parent, but in the sub this amount goes to the balance sheet. This creates a miss match between P&L and balance sheet. 

 

Any thoughts? 

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18th May 2019 15:57

Dr income Cr cost of providing legal advice

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to WhichTyler
18th May 2019 17:16

Dr income works fine, but the cost to the sub has been capitalised and therefore Cr cost would not eliminate the transaction, as it is sat in the balance sheet....

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to George54
18th May 2019 22:27

You are missing that it also sits in the holding company’s P&L.

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18th May 2019 16:44

Has the holding company provided the legal services itself, or has it purchased them from a third party provider of legal services and recharged the cost to the subsidiary?

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to johngroganjga
18th May 2019 16:46

The legal services originated from a third party and the costs have been recharged.

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to George54
18th May 2019 17:16

Then, if the recharge is really in the holding company’s sales WhichTyler’s entry is what you need. It eliminates the expense from the P&L a/c you see.

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to johngroganjga
18th May 2019 17:19

I see now. I believe I was having a 'moment'. Thanks for your reply.

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to George54
19th May 2019 09:45

Out of interest, what would the entries be if the legal services had been provided directly from the parent to the subsidiary? (ie not originating from a third party).

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to George54
19th May 2019 14:18

If you were happy that the group’s own labour could be capitalised you would not need to make any adjustment at all.

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