Key Concept

Intercompany elimination is the process for eliminating transactions resulting from the exchange of
goods and services within a consolidation group as well as for reconciling any amount difference
between two companies involved in intercompany transactions. The process using business rule-based
eliminations and adjustments in SAP Business Planning and Consolidation (BPC) is an advanced
elimination method. It uses multiple components, such as ownership data in a separate application from
consolidation application, methods and multipliers, elimination and adjustment rules, and a foreign
exchange rate. This unique intercompany elimination setting provides users with control of intercompany
elimination and consolidation of investment in BPC.

A company that used a legacy SAP consolidation system for 18 years wanted to have an elimination
functionality that it used for its consolation when it implemented SAP Business Planning and
Consolidation (BPC) for its consolidation. The solution I explain to you is the deliverable of the project
that went live in 2011 and has been used for multiple consolidation projects after the project using BPC
business rule-based automatic adjustment functionality.

The solution met the company’s requirement of wanting to keep similar solutions and processes that it
used. The benefits that this solution brought to the client were very big because the client has more than
800 active subsidiaries (total entity master has 1,800 entity dimensions members) and multiple joint
venture consolidation groups in BPC. The client now can use a simple drill-down report for elimination
difference analysis rather than a matching report that would contain a huge number of lines that could
cause a report performance issue.

I had an episode related to this solution happen on a BPC consolidation project in 2012. The project team
divided into two groups. One group was for the solution, and the other was for the standard BPC rule-
based elimination. The team discussed the solutions for two months to finalize the solution design for the
project, but the team couldn’t reach an agreement on the solution of elimination that they would
implement for the project. 

Therefore, the team held a meeting with the clients to ask which solution they wanted to use for their
consolidation system. The meeting didn’t last more than 10 minutes. The client went for the advanced
BPC elimination method. The team then could wrap up the long internal design discussion because of the
client’s quick decision based on its long business experience in consolidation. This episode indirectly
indicates the values and benefits that users could have using the solutions because they couldn't choose
the solution so quickly without seeing what they wanted for their consolidation process out of the
solution.
I compare the solution with other BPC elimination methods such as US elimination and standard
business rule-based elimination to show you the benefits from the solutions. I also guide you in how to
set up the advanced solution of intercompany elimination using BPC business rule-based automatic
adjustment functionality for your projects.

Intercompany elimination is the major task in an overall consolidation process. It is the process to
eliminate transactions resulting from the exchange of goods and services within a consolidation group as
well as to reconcile any amount difference between two companies involved in intercompany
transactions.

Note
I often categorize the consolidation processes into three categories. One is a data collection process in
which you import trial balances of your subsidiaries from various transactional systems into your
consolidation system. The second process is to run consolidation functions in your consolidation system
such as validation, currency translation, journal entries, intercompany elimination, profit in inventory
elimination, consolidation of investments, reclassification, and any custom programs for your
consolidation. During the process of running consolidation functions, BPC applies advanced accounting
Generally Accepted Accounting Principles (GAAP) into your consolidation book or database. The last
process is to prepare your financial reports using the consolidated balances generated by the functions
and entries in the previous process. Your consolidated financial statements such as balance sheet,
income statements, and cash flow are the outputs of this process.

The advanced solution of intercompany elimination using BPC business rule-based automatic adjustment
functionality is designed to eliminate intercompany transactions effectively and help business users to
reconcile intercompany elimination differences efficiently as compared with other ways of intercompany
elimination in BPC, such as US elimination, which is the standard BPC elimination.
The solution enables a simple drill-down report or SAP Business Warehouse (BW) Listcube function (a
BW transaction to retrieve data directly from a BW cube with filtering and InfoObject selection option) to
provide users with the following information all together without building a complex matching report or
manual calculation:

 Calculated difference amount by intercompany transaction

 Entity and trading partner information on both of the involved entities for the generated
intercompany differences of intercompany transactions.
 Information on which entity holds intercompany assets or income balances and which entity
holds intercompany liabilities or expense balances relating to intercompany transactions

What You Can Expect from the Solution

The solution provides you with the following benefits compared with the other intercompany elimination
methods in BPC:

 The entry generated by the BPC advanced elimination solution has an exact calculated difference
amount without any additional reconciliation steps or a matching report to calculate it.
 The solution generates only one difference entry if of the involved entities might have booked the
wrong amount for an intercompany transaction. BPC US elimination and the simple rule-based
BPC elimination without using the solution always generate two reclassification entries per
intercompany transaction relating to intercompany difference. However, those are not exact
posting differences, so you need to calculate the difference amount.
 The solution does not generate any record if the balances of intercompany transactions are
matched between involved entities of an intercompany transaction while the other solutions still
generate two additional records in the database.
 The solution enables a simple drill-down report or BW Listcube function (a BW transaction to
retrieve data directly from a BW cube with filtering and an InfoObject selection option).
Solution Comparison
There are three solutions compared in this article: advanced BPC elimination using a business rule, BPC
US elimination, and BPC standard business rule-based elimination. To clarify things, I use two simple
examples of intercompany transactions with a Consolidation Group CG1. The transactions are posted in
consolidation group CG1 among entities A, B, C, and D (Figure 1).

Figure 1

Consolidation group CG1 and subsidiaries (Group CG1 can be also used as an elimination entity for the
US elimination method.)
CG1 is the consolidation group that I use as an example, but it is also used as an elimination entity that
BPC requires for US elimination method. The elimination entity is not an actual entity, but it holds all
intercompany elimination difference postings for the entity hierarchy.

Intercompany Transaction Data in a Source System

Table 1 contains two examples of intercompany accounts receivable (A/R) and accounts payable (A/P)
transactions in SAP ERP Central Component (ECC).

Intercompa
Consolidat Data Trading Amount
 Line no. ny Entity Account
on group source Partner ($)
transaction

100,000.0
1 Seller’s No group ECC A A/R B
0

(70,000.0
2 Buyer's No group ECC B A/P A
0)

3 Seller’s  No group ECC C A/R D 30,000.00

(50,000.0
4 Buyer's  No group ECC D A/P C
0)
Table 1

Intercompany transaction data in ECC

Lines 1 and 2 are for the first intercompany transaction between entities A and B. A holds an A/R debit
balance of $100,000, and B holds an A/P credit balance of $70,000. Entities A and B have a different
amount for the transaction and $30,000 should go to the difference account after running any elimination
function in BPC. Lines 3 and 4 are for the second intercompany transaction between entities C and D. C
holds the A/R debit balance of $50,000, and B holds the A/P credit balance of $30,000. Entities C and D
have a different amount for the transaction and -$20,000 should go to the difference account.

Common Entries for All Options

Now assume that you have imported all trial balances to BPC and you ran your BPC Consolidation Data
Manager package. You have the following automatic entries regardless of which solution you use. There
are two types of common entries.

1. One is a group conversion entry that generates group currency balances for your consolidation
process using ownership data stored in ownership application (BPC needs three applications to
set up a consolidation application using business rules-based consolidation function) or entity
hierarchy in case of using US elimination.
2. The other is to eliminate the intercompany transactions.

Group Conversion Entry

Table 2 lists the group conversion entries. BPC converts group currency balances from no-group data in
Table 1 to a specific consolidation group as a beginning step of intercompany elimination. BPC is using
ownership data for this group conversion, but the US elimination method uses entity hierarchy
information. This process includes currency conversion that handles currency translation and
remeasurement from local currency to group currency if you have subsidiaries or operations in foreign
countries. The examples do not include the currency conversion process to focus on the intercompany
elimination process.

Type of Consolidati Data Trading Amount

Line no. Entity Account
entry on group source partner ($)

Group
100,000.0
1 conversio CG1 ECC A A/R B
0
n

Group
(70,000.00
2 conversio CG1 ECC B A/P A
)
n

Group
3 conversio CG1 ECC C A/R D 30,000.00
n

Group
(50,000.00
4 conversio CG1 ECC D A/P C
)
n
Table 2

Group conversion entry

(With regard to consolidation groups, US elimination usually does not use consolidation group dimension,
but it can use the group for reporting or information purposes.)

Lines 1 and 2 in Table 2 are the group conversion entries for the first transaction between entities A and
B. Lines 3 and 4 are the group conversion entries for the second intercompany transaction between
entities C and D. This is the basis data that the intercompany elimination package uses. US elimination
usually does not include group dimension in consolidation application because it uses an entity hierarchy,
not the ownership data, to identify the right consolidation group of the intercompany transactions.
However, the group can be used for US elimination if there is one consolidation group structure like the
example we used in this article.

As you can see in Table 2, all balances in Table 1 are converted to group CG1 with the same balances as
the original group currency balances in Table 1.

Elimination Entry (Reversal Entry of intercompany

Transactions) 
Other common entries are to eliminate intercompany transactions. These entries make the intercompany
transaction balance zero with an indicator, such as a specific member of DataSource (BPC 10.0 uses a
member named AuditTrail for the DataSource type dimension in a pre-delivered Environment Shell, but it
confuses users with activity or data audit, so I use DataSource rather than AuditTrail). I use DataSource
member IC_ARAP for the data generated by BPC elimination functions, while the source data has
DataSource member ECC.

In Table 3, lines 1-4 make the original transaction zero because they carry the same balances with the
opposite sign. Now all intercompany transaction balances are zero, but the user still can check what the
original intercompany transaction balances are since they all keep their own DataSource members that
tell the user about which system or function is the source of the records. Original source transaction data
uses a source DataSource member ECC and an elimination entry of those intercompany transactions
uses elimination DataSource IC_ARAP.

Type of Consolidati Data Trading

Line no. Entity Account Amount ($)
entry on group source partner

Eliminatio (100,000.0
1 CG1 IC_ARAP A A/R B
n 0)

Eliminatio
2 CG1 IC_ARAP B A/P A 70,000.00
n

Eliminatio (30,000.00
3 CG1 IC_ARAP C A/R D
n )

Eliminatio
4 CG1 IC_ARAP D A/P C 50,000.00
n
Table 3

Elimination entry by BPC consolidation function

Note
A DataSource dimension provides users information on the source of data. An AuditTrail dimension is
also used to refer to the same data as a DataSource type dimension. For example, data from an ECC
system can have a member, such as TD_ECC, and data generated by intercompany elimination IC_ELIM
so users can track how the values that have been updated.

Intercompany Difference Entries by Option

US elimination in BPC posts intercompany elimination differences into an elimination entity that is not a
real entity, but an entity only for the intercompany elimination process. One elimination entity needs to be
created per consolidation group to set up US elimination in BPC.

As you can see in Table 4, all intercompany elimination difference postings use entity dimension member
CG1, so the user cannot know which entity originally holds the intercompany transactions eliminated and
the difference amount per transaction cannot be captured because the original entity information
changed to CG1 for all intercompany data. You may keep the entity information using an additional
dimension (e.g., you can have an additional user defined entity dimension and keep the original entity
information with it). However, it may confuse users with the entity dimension and it adds redundant data
to your application only for the elimination entries.

Consolidati Data Trading Amount

Line no. Type of entry Entity Account
on group source partner ($)

Difference for the AR/AP

100,000.0
1 first intercompany CG1 IC_ARAP CG1 differen B
0
transaction ce

Difference for the AR/AP

(70,000.0
2 first intercompany CG1 IC_ARAP CG1 differen A
0)
transaction ce

Difference for the AR/AP

3 second  CG1 IC_ARAP CG1 differen D 30,000.00
intercompany ce
transaction

Difference for the AR/AP

(50,000.0
4 second  CG1 IC_ARAP CG1 differen C
0)
intercompany ce
transaction
Table 4

Elimination difference entry using US elimination

(With regard to consolidation groups, US elimination usually does not use a consolidation group
dimension, but it can use the group for just reporting or information purposes.)
As you can see in Table 4, you can only have the intercompany difference amount for all intercompany
transactions together by consolidation group, and not by the intercompany transaction at the entity level.
When you sum up all the intercompany elimination difference entries by consolidation group, this
example gives you a difference amount of $10,000 = 100,000 – 70,000 + 30,000 – 50,000, but you cannot
know how the difference is generated and which entities are related to the difference.

Difference Entry Using BPC Standard Business Rule

Based Elimination
Table 5 lists examples of intercompany difference postings using BPC standard elimination. All the
entries keep both of their original entity and trading partner values and only the account number is
changed to an AR or AP difference account from each A/R and A/P account.

Consolidati Data Trading Amount

Line no. Type of entry Entity Account
on group source partner ($)

Difference for the AR/AP

100,000.0
1 first intercompany CG1 IC_ARAP A differen B
0
transaction ce

Difference for the AR/AP

(70,000.0
2 first intercompany CG1 IC_ARAP B differen A
0)
transaction ce

Difference for the

AR/AP
second
3 CG1 IC_ARAP C differen D 30,000.00
intercompany
ce
transaction

Difference for the

AR/AP
second  (50,000.0
4 CG1 IC_ARAP D differen C
intercompany 0)
ce
transaction
Table 5

Elimination difference entry using BPC standard elimination

Using BPC standard elimination method, you cannot have an intercompany difference amount by
transaction since the entries by BPC standard elimination keep their original entity values so the entries
are posted into each entity. You can calculate the difference amount by transaction during your
intercompany difference reconciliation process only through using additional tools such as a custom
intercompany matching report, or macro-based excel calculation. Following are the steps you need to do
in order to find the difference by transaction when you use BPC standard business rule-based elimination:

1. You need to find the paired transactions in two entities related to one intercompany transaction.
Line 1 record in Table 5 has entity A and trading partner B with AR/AP difference account. Line 2
has entity B which had an intercompany transaction with trading partner A with AR/AP difference
 account. Based on analysis of those records, you can find that lines 1 and 2 are related to an
intercompany transaction.
2. Calculate intercompany difference: Now you found both of the related records, lines 1 and 2 in
Table 5, for an intercompany transaction so you can calculate the intercompany elimination
difference $ 30,000 = $100,000 – $70,000 for the first intercompany transaction in Table 1.

This method does not change the net income value of each entity even after eliminating intercompany
income and expenses since the same amount of intercompany transaction is posted to the same entity
with intercompany difference account. So the intercompany elimination impact on net income by entity
cannot be analyzed. This impact is also related to non-controlling interest posted if a subsidiary that is
owned less than 100 percent by a holding company is part of the intercompany transactions.

Difference Entry Using BPC Advanced Elimination

Table 6 shows you the difference postings using the advanced BPC elimination, which is the solution that
I recommend that you use on your current or future BPC consolidation project. The entity has the
difference entry posted by the BPC advanced elimination as an entity holding either intercompany asset
balance or income balance. The entity dimension members B and D are used for the difference postings
in Table 6 because they hold A/P balances that you can check in Table 1. You set up the business rule to
post any intercompany elimination differences to entities holding A/P balances. Entities A and C were
used as trading partner values in Table 6 since they hold A/R balances that you can see in Table 1 and
you set up the business rule for the entries. 

Type of Consolidati Data Trading Amount

Line no. Entity Account
entry on group source partner ($)

Difference
for the
AR/AP
1 lines 1 CG1 IC_ARAP B A 30,000.00
difference
and 2 in
Table 1

Difference
for the
AR/AP (20,000.00
2 lines 3 CG1 IC_ARAP D C
difference )
and 4 in
Table 1
Table 6

Elimination difference entry using the advanced BPC elimination

The line 1 record in Table 6 has entity dimension member B and trading partner dimension member A and
the exact intercompany elimination difference value of $30,000, which is calculated from the original first
intercompany transactions in Table 1 (lines 1 and 2). Entity B holds A/P balances and trading partner A
means the entity holds A/R balances, which is defined in the business rule table as a difference posting
strategy.

Note that there is no intercompany difference entry if both sides of the entities book correct
intercompany transactions with the right amount and the right trading partner in your source system.
However, the other two methods, US elimination and standard BPC elimination, keep the same number of
intercompany difference entries, even though all the transactions are matched to each other.

Table 7 summarizes the benefits of using the advanced BPC elimination rule. Using the solution, you can
save database storage due to much fewer entries, identify additional information on original transactions,
capture the net income impact of intercompany elimination, and make the intercompany reconciliation
process efficient.

No. of difference Can capture income

Can identify which Reconciliation by
BPC elimination entries per impact related to
entity holds A/R or intercompany
method intercompany intercompany
A/P? transaction
transaction transaction?

When there is a
US elimination difference: 2 No By entity: no No

When there is no By consolidation

   
difference: 2 group: yes

When there is a By entity:

Standard elimination No No
difference: 2 no

When there is no By consolidation

     
difference: 2 group: yes

When there is a
Advanced elimination Yes By entity: yes Yes
difference: 1

When there is no By consolidation

 
difference: 0 group: yes
Table 7

Method capability comparison

How to Set Up BPC Advanced Elimination 

Now I explain how to set up a BPC business rule table for the advanced elimination and data generated in
the back-end BW cube by the setting. However, this article covers the business rule table settings for
balance sheet intercompany transaction elimination, but not income and expense elimination. That would
need an additional setting for capturing net income and the current period retained earnings impact by
intercompany elimination.

Figure 2 shows consolidation business rule settings on the BPC web administration front-end page. To
access this page, follow menu path BPC web administration > Rules > Business Rules > Consolidation >
Eliminations and Adjustments.
 Figure 2

BPC advanced elimination business rules setting

The BPC advanced elimination business rule setting has three lines by intercompany elimination for a
balance sheet account.

The first line in Figure 2 is reversing entries, which are shown in Table 3. The value IC_ARAP in the Source
Account column is the property of account dimension referring to only A/R and A/P accounts. The rule of
this example is using A/R 11140 and A/P 21140 account numbers.

The second and third lines calculate the intercompany difference amount using AR/AP difference
account 29999 in the Destination Group Account column.

The second line is for the A/R record. The line of business rule reclassifies A/R 11140 balance to account
29999, changing entity to trading partner and trading partner to entity using the check mark on the Swap
Entity-Intco setting column.

The third line is for the A/P account. This business rule setting moves A/P 21140 balance to account
29999, keeping its entity and trading partner.

The lines 2 and 3 settings make two records merged into one line using an entity value that holds the A/P
21140 account balance, trading partner, which holds the A/R account 11140 balance. Account 29999 is
used to calculate the intercompany company elimination difference per intercompany transaction.

Figure 3 shows you the back-end BW data generated by the solution. (You can use transaction Listcube
or Display data from the right click menu over your BPC consolidation cube.) The example uses entity
7001, which holds A/R balance $100,000 with trading partner 7004. Entity 7004 has A/P 21140 balance -$
70,000 with trading partner 7001.

Figure 3

Back-end BW data after running BPC advanced elimination

Lines 1 and 3 in Figure 3 are the group conversion entries for the first transaction between entity 7001
and 7004, which are shown in Table 2. They use TD_ECC DataSource (the DATASRC column in Figure 3)
member that indicates that the source data comes from your ECC system.

Lines 2 and 4 in Figure 3 are entries that make the original transaction zero because they carry the same
balances of lines 1 and 3 with the opposite sign with different DataSources (the DATASRC column in
Figure 3) member IC_ARAP. Now entity 7001 and 7004 intercompany A/R and A/P balances are zero, but
you can still check what the original transaction amounts were using a drill-down report by DataSource
dimension member.

Line 5 in Figure 3 is the calculated difference balance using the BPC advanced elimination method. The
difference is calculated as $30,000 = $100,000 – $70,000 using lines 1 and 3 intercompany transactions
between entities 7001 and 7004. The entity value 7004 is used because it holds A/P 21140 balance, and
trading partner value 7001 is used since it holds A/R 11140 balance, and intercompany AR/AP difference
account 29999 is used as the business rule defined in Figure 2.

This type of difference posting strategy that posts any difference amount into entity holding A/P (a type
of liability or expense account) balance is a leading practice because it explains many root causes of
intercompany differences. For example, many intercompany differences are generated because A/P
entries are made later than A/R entries. The reason A/P entries are made later is because inventory
delivery takes time and payment should be made some time after billing is completed in case the
transaction does not occur in the same ECC system.

Note
The calculated difference balance using the BPC advanced elimination method is generated during a
consolidation package run so that the incremental consolidation feature introduced with BPC 10.0 cannot
be used with this method. The incremental consolidation processes only process the delta portion of the
data imported into a BPC application. Therefore, the solution sometimes calculates the difference with
only a part of the data, not all the required data for calculating the elimination difference. The incremental
consolidation is a good solution for a corporation that uses a huge number of records for its
consolidation. Based on my previous experience, it takes less than a  minute to complete consolidation
package for corporations with about 50-100 subsidiaries using this solution and six to seven minutes for
a huge conglomerate with more than 800 subsidiaries. The package running time for this solution is the
same as the running time with the BPC standard elimination with a full consolidation run.

Advanced Elimination in SEM-BCS or EC-CS

The concept and method of elimination of the BPC advanced elimination rule have been available with the
previous SAP consolidation tools, such as Strategic Enterprise Management-Business Consolidation
System (SEM-BCS) or Enterprise Controlling-Consolidation (EC-CS) , as a configuration menu setting. The
previous solutions have three options for intercompany elimination difference strategies. One of them
has the same concept as the advanced BPC elimination rule uses.

To view the configuration setting screen in EC-CS, go to the setting menu SPRO > Enterprise Controlling >
Consolidation > Consolidation Functions > Automatic Postings > Interunit Elimination > Define Methods
(Figure 4).
 Figure 4

An example of setting to post differences into an entity holds payable balances in EC-CS
The difference strategy setting shown in Figure 4 is to post intercompany elimination differences into an
entity that holds the balances of accounts payable. It is the part of the standard configuration that users
can choose out of three available menu choices in EC-CS, and SEM-BCS. The previous SAP consolidation
systems have more choices for calculating intercompany difference than what the current BPC provides
users with.