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# From Local Books to the Organization's Profit
- URL: https://abundance.alloconomy.com/alloconomy/close-09-organization-profit/
- Published: 2026-10-28T19:39:38.000Z
- Updated: 2026-10-28T19:39:38.000Z
- Description: Understand group eliminations, currency, tax and the different levels of profit.
- Author: Sathya Narayanan
- Tags: Alloconomy, Accounting, Month-End Close, #series-detail, #Import 2026-10-28 12:29

Accounting · Month-End Close

## How profit earns credibility

1. Part 1[The five-question cheat sheet](https://abundance.alloconomy.com/alloconomy/month-end-close/)Understand why the unclosed profit is provisional and what makes a reviewed result credible.
2. Part 2[Profit, equity and cash](https://abundance.alloconomy.com/alloconomy/close-02-why-profit-changes-equity/)Trace close adjustments into their supporting balances, then reconcile profit, equity and cash.
3. Part 3[Choose the right period](https://abundance.alloconomy.com/alloconomy/close-03-which-month/)Use promises, delivery and payment rights to separate this month from the next.
4. Part 4[Find missing costs](https://abundance.alloconomy.com/alloconomy/close-04-before-the-invoice/)Accrue completed work, reconcile the eventual invoice and avoid counting the same cost twice.
5. Part 5[Apply the recognition rules](https://abundance.alloconomy.com/alloconomy/close-05-expense-or-asset/)Distinguish spending from expense and identify the resource that qualifies to remain as an asset.
6. Part 6[Follow consumption and loss](https://abundance.alloconomy.com/alloconomy/close-06-cost-becomes-expense/)Trace cost of sales, depreciation, inventory shortages and write-downs.
7. Part 7[Make judgment reviewable](https://abundance.alloconomy.com/alloconomy/close-07-estimates/)Support credit losses and other estimates, and distinguish new information from errors.
8. Part 8[Test the evidence](https://abundance.alloconomy.com/alloconomy/close-08-reconciliation/)Connect the ledger to banks, subledgers, schedules and evidence beyond the accounting system.
9. Part 9**Define the reporting boundary**Current essayUnderstand group eliminations, currency, tax and the different levels of profit.
10. Part 10[Close the complete example](https://abundance.alloconomy.com/alloconomy/close-10-one-month-closed/)Reconcile every adjustment to the income statement, balance sheet, equity and cash flow.

So far, we have followed one set of books. A group must also make several completed sets speak as one.

Separate-entity books follow the entity being accounted for. Consolidated accounts bring a parent and the relevant entities it controls into a group view. A management report might draw a different boundary again, such as a product or region. The reporting entity is not invariably one legal company. [IFRS 10's overview](https://www.ifrs.org/issued-standards/list-of-standards/ifrs-10-consolidated-financial-statements/?ref=abundance.alloconomy.com) explains the consolidated perspective.

Before interpreting profit, establish **whose activity is included, which accounting basis applies, and which costs the headline contains**.

## Completed local books become a group submission

An entity team sends more than a profit number. The group team needs its reviewed balances, account mapping, intercompany detail, significant adjustments and unresolved items, with a clear reporting version.

The submissions must follow a compatible reporting basis. Like transactions need consistent group accounting policies; reporting dates need alignment or the adjustments permitted by the applicable rules. Differences between local and group policies may require additional entries for consolidation. The Australian standard incorporating IFRS 10 sets out these requirements in [AASB 10, paragraphs B87 and B92–B93](https://standards.aasb.gov.au/aasb-10-nov-2024-0?ref=abundance.alloconomy.com).

Operationally, the group team checks which submissions are complete, resolves differences and controls later changes. A subsidiary correction after submission can affect the group result even though the consolidation workbook itself has not changed.

## Internal trade does not create group profit by itself

Consider a separate illustration, outside Stories Inc.'s October case. A group owns wholesale and retail subsidiaries. The wholesaler buys books externally for $40 and sells them to the retailer for $60\. At month-end, the retailer still holds them. Ignore tax and other costs here.

The wholesaler records $60 revenue, $40 cost of sales and $20 profit. The retailer records $60 inventory. Simply adding the books makes the group appear to have earned $20 from moving stock between businesses it owns.

From the group's perspective, the books still cost $40, and none has reached an outside customer.

| View at month-end           | Revenue from these books | Profit from these books | Inventory held |
| --------------------------- | ------------------------ | ----------------------- | -------------- |
| Separate books simply added | $60                      | $20                     | $60            |
| Consolidated group          | $0                       | $0                      | $40            |

Consolidation eliminates the internal sale and the profit embedded in unsold inventory. If the invoice remains unpaid, the internal receivable and payable are eliminated too. These adjustments belong to the group view; each subsidiary retains its own transaction records. [AASB 10, paragraph B86](https://standards.aasb.gov.au/aasb-10-nov-2024-0?ref=abundance.alloconomy.com) specifies the elimination principles.

Before eliminating balances, both entities should identify the same transaction and counterparty. A mismatch may reflect an omitted invoice, different periods, currency treatment or goods in transit. The team investigates the cause rather than inserting a balancing adjustment. Knowing what stock remains unsold is another dependency: matching the invoice alone does not reveal the unrealized profit in closing inventory.

## Currency creates two different close tasks

A *functional currency* is the currency of a business's primary economic environment. A *presentation currency* is the currency used to show the financial statements. They can differ.

First consider an entity with a supplier payable denominated in a foreign currency. Translating that monetary balance at the reporting-date rate can create an exchange gain or loss, generally in profit or loss. This is different from translating an entire foreign operation into the group's presentation currency, where resulting translation differences generally go through other comprehensive income and accumulate in equity. Relevant exceptions require separate analysis. [AASB 121, incorporating IAS 21, paragraphs 28 and 39](https://standards.aasb.gov.au/aasb-121-oct-2023?ref=abundance.alloconomy.com) distinguishes the treatments.

The close therefore needs the correct balances, currencies, rates and classification of the resulting differences. A reviewer asks whether a movement reflects trading performance, remeasurement of a foreign-currency balance, or translation into the reporting currency. Those explanations should remain distinguishable in the monthly pack.

## Tax turns pretax profit into another calculation

Back in the single-entity Stories Inc. case, reviewed pretax profit is $2,400\. Our deliberately simple assumption is a 25% tax rate, no permanent or temporary tax differences, and no October tax payment. The result is $600 tax expense, $600 tax payable and **$1,800 net profit**.

Real tax work reconciles accounting profit with the applicable tax rules. Some expenses may never be deductible; others may be deductible in a different period. The accountant needs those differences, relevant rates, prior payments and support for any tax assets or liabilities.

*Current tax* concerns tax payable or recoverable. *Deferred tax* addresses specified differences between an asset or liability's accounting amount and its *tax base*—the amount attributed to it for tax purposes—subject to recognition conditions and exceptions. For example, different depreciation timing can leave equipment with different accounting and tax amounts. An unpaid current tax bill is not, for that reason, deferred tax. [IAS 12 overview](https://www.ifrs.org/issued-standards/list-of-standards/ias-12-income-taxes/?ref=abundance.alloconomy.com)

## Name the profit that finally reaches the reader

Stories Inc.'s $55,000 revenue less $24,000 recorded cost of books sold gives $31,000 before the other expenses, including separately shown inventory losses. That is far from its $1,800 net profit.

A monthly pack should identify each subtotal's included costs and explain any management adjustments. Group eliminations, currency and tax work must connect to the reporting version being approved. These are IFRS-oriented illustrations; other frameworks can differ.

The practical request is a bridge: **from the submitted entity balances, through group and tax adjustments where relevant, to the exact profit measure being presented.**

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[← Test the evidence](https://abundance.alloconomy.com/alloconomy/close-08-reconciliation/) | [Close the complete example →](https://abundance.alloconomy.com/alloconomy/close-10-one-month-closed/)

*Fictional teaching example. Personal views based on public sources; no confidential employer information or employer endorsement. Accounting policies and business circumstances require case-by-case analysis.*