Create Adjustment Rules

Create Adjustments

Thinking through the rules or requirements for the proper elimination relates directly to the T- Accounting model.  The goal of all the eliminations and other adjustments is to have a complete set of valid management consolidation reports for all company accounts with the intercompany dimension member I_NONE.   Sometimes, using the rules only as you think they should be used may not produce the results.  It is best to know the accounting required and how the rules of various types can produce a desired outcome.  Remember, the rules are facilitation processes that behave in a predictable manner.  Your goal is to get a predictable outcome using the rules in any way that is stable and consistent with the required accounting.

In this case we want to eliminate the inter Company AR and AP amounts and Inter Company Seller Company Sales and Cost of Goods Sold.  It is also possible that some companies may not even pass these balances to a BPC application.  In any event, these rules are likely well understood by many and can be run using automatic adjustments with the ownership application active so that business rules for the entity method can be accessed. 

The one twist to our thinking is that the difference between the Seller Company’s Inter Company Sales and Inter Company Cost of Sales needs to be passed to the Buyer Company as Profit in Inventory.  For that we use a specific Flow Member F_PIIP in our rules.

Note too that all the data shown prior to this step would have been loaded from a source system(FAGLFLEXT or BSEG etc from BI for example using common extractors).



Figure 12. Simple Elimination Rules

This rule creates the basic elimination of accounts payable and accounts receivable.  From loaded data, the intercompany transaction exists in the fact tables.  After the rule is run, the group currency consolidated results accurately reflects the elimination.



Figure 13. Additional Eliminations and Entity/Intco Swap for Profit in Inventory Passed

This rule has a bit more complexity.  While it could have been done in another step and to another data source, we have chosen here to show the intercompany sales and intercompany cost of sales elimination in the AJ_PROFITINV destination source.

The first two lines execute this elimination on specific accounts.  The last line transfers the intercompany sales and intercompany cost of sales from the seller entity to the buyer entity by the selection of SWAP ENTITY/INTCO parameter.  In addition, the forced INTCO member I_NONE causes the generation of an additional record in the I_NONE Intco member so that the consolidated results will reflect the profit in inventory transferred in the consolidated results.  (in the example we use some specific account pointers to facilitate better understanding.  You may want to  use DIMLISTX exclusively)

This concludes step one which does the eliminations and sets up the profit in inventory that has been passed to the buyer entity.  Now with a beginning inventory, and ending inventory and a profit in inventory figure in the flow of the buyer intercompany inventory, we can calculate and post the adjustments to the period cost of goods sold and the inventory carrying value in the buyer company based on simple math, dimension formulas or minimized script logic by creative use of automatic adjustment rules.



Figure 14. Consolidated Report in Group Currency G_CG2 = EUR

What the above does not yet reflect is the adjustment to the buyer company’s external cost of sales and remaining inventory carrying balance.  We will deal with that in additional tips as there are several creative ways to move to the next steps.