The consolidation of debts represents an offsetting of receivables and liabilities in the consolidated financial statements. Offsetting takes place when companies from the scope of consolidation have exchanged deliveries and services among themselves. Since all the companies involved are presented as a single entity in the consolidated financial statements, a “self-supply” must not be presented and thus the items receivables and liabilities must be consolidated by eliminating the amounts that relate to internal business relationships.
If the amounts to be eliminated are insignificant, permits the waiver of debt consolidation.
– Loans and other claims,
– Provisions and liabilities
– Deferred items.
– Liabilities (also down payments and bonds)
– Contingent liabilities
– Contingent liabilities
Off-balance-sheet offsetting exists if there is a pure debt-liability relationship in the two companies involved.
Company “sample” has to give companies “example” claims against affiliates of 10,000 euros. Company “Example” identifies the same amount as a liability to affiliates. Both companies are included in the scope of consolidation so that the receivables and liabilities are eliminated in the consolidated balance sheet. The equal amounts are thus eliminated by debt consolidation.
Since the profit and loss account (P & L) is not affected, it is a debt consolidation without effect on income.
If receivables and payables are posted at different times – for example because the receivable is posted when the delivery is sent to the company “Muster”, but only three days later as an obligation for companies “Beispiel” when the delivery has been received – there will be netting differences. In the course of an intercompany reconciliation, in which a reconciliation of the reciprocal receivables and liabilities takes place between the group companies, these differences are avoided.
A genuine netting difference arises if a liability is not offset by a receivable, but in the second affected group company an account affecting profit was affected.
Group company “Muster” has written off its receivables from group company “Example” through profit or loss, because “example” has financial difficulties. This was done through the voting rights provided for in the HGB and through the imparity principle.
In the balance sheet of the company “example”, liabilities to affiliated companies continue to be reported. In the balance sheet of the company “Muster”, however, the receivables are no longer apparent from the depreciation. An effective elimination must take place as part of debt consolidation.