Intercompany Eliminations · Track 5 · Tutorial 3 of 9

Eliminate loans and interest

A loan between group companies is an asset for the lender and a liability for the borrower, and the interest on it is income for one and an expense for the other. All four come out, and in a cross-currency loan the two sides move apart every month.

You will needIntercompany Loans switched on and the accounts mapped, as in the Set up intercompany track.

By the endCompany A’s loan to Company C and October’s interest on it eliminated, with the exchange difference on the loan in FX.

1Know what to eliminate

In October Company A lends Company C SGD 85,600, recorded by Company C as GBP 50,000. Company C pays interest of GBP 250 a month, and Company A records SGD 430.

Company A’s loan to Company C and the October interest on it, eliminated together: the loan balances with a 400.00 FX difference, and interest income against interest expense — The loan and the interest, in one entry.

The loan	A balance, translated at the closing rate. Company C’s GBP 50,000 is SGD 86,000 at 1.7200, against Company A’s SGD 85,600, so the sides differ by 400.00. That is an exchange difference: FX.
The interest	Income and expense for the month, translated at the average rate.
Accrued interest	Interest charged but not yet paid sits in a receivable and a payable. Eliminate those under Intercompany Loans too.

2Choose how to clear it

Use	When	See
A rule on Method 4	You want to see and approve the loan’s elimination every month before it posts	Method 4: review and approve every month
A rule with several legs	The loan and the interest should be cleared by one rule	Build rules with several legs
A GL entry	A one-off loan, or an item no rule covers	Post a GL elimination entry

A rule eliminates each month’s movement at that month’s rates, so it keeps up as the loan is drawn, repaid and retranslated. A GL entry stays in later months as it was posted: after the first month, enter only the change.

3Know what the type accepts

Under Intercompany → Intercompany Loans, an entry’s lines can use Current Asset, Non Current Asset, Current Liability, Non Current Liability, Interest Income and Interest Expense accounts. A loan booked to Accounts Receivable or Accounts Payable goes under Trade Receivables / Payables instead.

4Check the month

Open the group’s Balance Sheet and Profit & Loss for October with Show Entities on.

Check

In the group column, the accounts 1300 and 2400 are mapped to are zero, and so are interest income and expense for Company C’s interest. The FX account holds the 400.00.

5If something goes wrong

The loan is out by a different amount every month	That is the retranslation. With a GL entry, post each month’s change as FX, or clear the loan with a rule.
The FX difference is large	Check the rates on each line against the group’s closing and average rates for the month, and look for a drawdown or repayment one company hasn’t booked.
… cannot be used in this elimination type.	The account isn’t one Intercompany Loans accepts. Check its type in the company’s chart.

Want more detail? See the documentation

Elimination Entries Auto Eliminations Elimination Review

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