How to Consolidate Balances of Multiple Entities and Set Up Elimination Rules in D365 F&O

Introduction

Accurate reporting and analysis require the consolidation of balances from various entities in complex financial environments. For this reason, Microsoft Dynamics 365 Finance and Operation provides strong tools that let businesses expedite their financial consolidation procedures. This blog will show you how to properly handle currency translation, set up elimination rules, and create a new entity for consolidation. You can make sure that your consolidated financial statements give a true and accurate picture of the financial health of your company by being aware of these procedures.

To consolidate the balances of multiple entities, a new entity is created where the balances of the selected entities are consolidated and eliminated as per the requirement. In the Organization administration module>Organizations>Legal entities select Use for financial consolidation process and use for elimination process.

Another part of set up is to create Elimination Rule:
Create Elimination Journal by using the below screen:

To run the consolidation process, navigate from the Main Menu to Consolidation -> Consolidate Online.

The consolidation window opens, where the user can select the options as explained below:

1. Description – Give a description to the consolidation process which can be used as a reference later.
2. Consolidation Period – This is the period for which the consolidation will run for all the entities.
3. Consolidate accounting currency – Keep the option to Use Currency Translation to make sure the currency differences across legal entities are converted as per the exchange rates.

Go to the Legal Entities tab.

Inside the legal entities, the user can select the entities to consolidate and the percentage of balances to be consolidated.

Go to the Elimination tab.

In the proposal options, keep the option as Proposal only. This will run the elimination of balances, but it will not post the amounts. The amounts will be posted to the ledger separately by the user.

Add the elimination rule in the line.

The elimination rule will eliminate balances based on 2 methods:

1. Fixed Method – Here, the amount to be eliminated between 2 GLs is defined in the system and it is a fixed amount.
2. Net change method – Here, the system will eliminate the transactions for the year between 2 GLs.

Select the GL posting date for the date on which the elimination of the balances will be posted. Ideally this date will be the last date of the fiscal period.

Go to the currency translation tab.

The system will display the selected legal entities along with their base currency. At the bottom, select the exchange rate type. The exchange rate type will automatically convert the base currency of all entities to the base currency of the consolidation entity. In the above example, the exchange rate will convert INR and BRL to SGD.

Note – This will work if the exchange rates are defined first.

Lastly, click on OK.

The system will run the consolidation process as a batch job and will provide the results in the trial balance after a few minutes.

To verify the balances, open the trial balance for the fiscal period used in the consolidation.

The TB will display the consolidated amounts of all entities in SGD only.

For updating opening balances:

General Journals to be used for updating opening balances

For currency exchanges rates:

Separate currency exchange rate type consolidation to used.

In doing the currency translation, distinction should be made for monetary items and non-monetary items in the Balance Sheet. Normally, the latter should be part of Other Comprehensive Income (OCI).

In the consolidation process, we can map different currency rate to different accounts through this screen.

for Equity Method where only profit or loss has to be accounted in the consolidated entity, Journal entry has to be passed.

Conclusion

Maintaining financial accuracy and transparency in Finance and Operations requires successfully consolidating balances and establishing elimination rules. You can handle currency translation, properly apply elimination rules, and efficiently oversee the consolidation process by following the steps outlined in this blog. This strategy strengthens overall financial management within your company as well as the accuracy of your financial reports.

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