In consolidation,elimination of intercompany balances are necessary when the parent and subsidiary do business together (e.g.,when the subsidiary sells goods or products to the parent).

Question

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Intercompany balances arise when transactions occur between a parent and its subsidiary. To avoid double counting of those transactions, elimination of intercompany balances is necessary during consolidation. For example, if the subsidiary sells goods to the parent, the revenue and cost of goods sold will be eliminated, leaving only the profit or loss from the transaction in the consolidated financial statements.

In Consolidation,elimination of Intercompany Balances Are Necessary When the Parent