As per IFRS 10 in the process of preparing consolidated financial statements, certain transactions and balances between the parent company and its subsidiaries may need to be eliminated. This is done to ensure that the financial statements of the group do not reflect transactions and balances that occur between entities within the group, as this would result in double-counting.
Examples of eliminations that may be required include:
1.Elimination of intercompany transactions: These are transactions between entities within the group, such as the sale of goods or services between a parent and its subsidiary. The elimination ensures that the transaction is only recorded once in the consolidated financial statements.
2.Elimination of intercompany balances: These are balances owed by one entity within the group to another, such as a loan from a parent to its subsidiary. The elimination ensures that the balance is not double-counted in the consolidated financial statements.
3.Elimination of unrealized gains or losses on intercompany transactions or balances: These are gains or losses that arise from transactions or balances between entities within the group, but have not yet been realized through a transaction with a third party. The elimination ensures that the gains or losses are not reflected in the consolidated financial statements until they are realized.
