Subsidiary and associate company cost recharges Subsidiary and associate company cost recharges

Intercompany Definition

Transactions between the university and university companies are referred to as intercompany transactions. These companies’ records are embedded within the university’s general ledger accounting system (QL-x) and as such allow direct postings of costs as per any other valid general ledger code.

When preparing consolidated published accounts then transactions with university subsidiary companies need to be removed / excluded otherwise there will be some double counting of both income and expenditure within the profit and loss account and inflation of both debtors and creditors items within the balance sheet (to name 2 of the issues). Transactions with associate companies of the university should be treated the same as any transaction with external customers and other entities outside of the university group. The lists detailing whether a company is an associate or a subsidiary company are detailed in Appendix 1.

There should be no invoices raised through the debtors system for these transactions

Section 1 – Where costs need to be charged within the subsidiary company accounts

(i) Where non payroll costs are originally incurred by the University but are to be charged to a subsidiary company (profit and loss accounts in both entities – GL codes)

Income to be shown within the University accounts as Intercompany Income, this is defined on the system as having a level 3/4 descriptive code of 1.70. Expenditure within the company to either be coded to a specific level 3/4 code of 4.99 or coded to a standard non payroll level 3/4 code with a level 2 code of “E1” (which identifies transactions with the university). Please note that if you want to use the “E1” option then this must be agreed and approved by the company accountant.

There should be no invoices raised through the debtors system for these transactions.

Example: 

CMP incurs £1,000 travel costs that need to be recharged to UEA Consulting Limited.

Journal to be raised;

          CMP.00.1.70.-   £1,000 (Cr)
          UCC.10.4.99.-    £1,000 (Dr)

          or 

          CMP.00.1.70.-   £1,000 (Cr)
          UCC.E1.3.16.-   £1,000 (Dr)

The benefits of using the 4.99 code (first option) is that the Level 2 code can be used to group expenditure within the company accounts, the benefit of using the level 2 code of “E1” means that the descriptive (level 3/4) detail can be retained.

(Note: If charging a project then, the project code heading must be attached to a GL code with the level 3/4 of 4.99).

If the University is acting as an agent on behalf of the subsidiary then the item can be directly coded to a non intercompany code within the subsidiary provided the cost / income are as per the external invoice and there are no significant contractual obligations with the University.  This rule should only apply to one off low value items and must be agreed with the subsidiary company before proceeding (the overall permitted level of spend has to be authorised by the company).

(ii) Where non payroll costs are originally incurred by the University but are to be charged to a capital code within the subsidiary company (non project)

Income to be shown within the University accounts as Intercompany Income (capital), this is defined on the system as having a level 3/4 descriptive code of 1.73. Expenditure within the company to either be  coded to the project with specific level 3/4 code of either 8.07 (new build), 8.08 (refurbishment) or 8.16 (equipment)

There should be no invoices raised through the debtors system for these transactions

Example:

EBD incurs £10,000 network costs that need to be recharged as part of a UEA Utilities Limited general  refurbishment (non project).

Journal to be raised;

          EBD.00.1.73.-    £10,000 (Cr)
          UTL.00.8.08.-     £10,000 (Dr) 

(iii) Where non payroll costs are originally incurred by the University but are to be charged to a capital code within the subsidiary company (project based)

Income to be shown within the University accounts as Intercompany Income (capital), this is defined on the system as having a level 3/4 descriptive code of 1.73. Expenditure within the company to either be coded to a project heading (where the level 2 code is U to identify inter-company items) that is linked to a specific GL code of either 8.07 (new build), 8.08 (refurbishment) or 8.16 (equipment) depending on the project.

There should be no invoices raised through the debtors system for these transactions.

Example: 

EBD incurs £2,000 maintenance costs that need to be recharged to UEA Utilities Limited as part of an overall new building project.

Journal to be raised;

          EBD.00.1.73.-                £2,000 (Cr)
          A10070 UTL.U.EM         £2,000 (Dr) 
                                                             – Note this is linked to GL code UTL.00.8.07.-

(iv) Where transfers occur between two subsidiary companies (i.e. UEA Consulting Limited and  UEA Enterprises Limited)

Income to be shown within the relevant company as Subsidiary to Subsidiary Inter-company Income.  This is defined on the system as having a level 3/4 descriptive code of 1.72.  Expenditure within the company to either be coded to a specific level 3/4 code of 4.99 or coded to a standard non payroll level 3/4 code with specific level 2 code relating to the other entity which begins with the letter “E” (See Appendix 1 for the level 2 code by company)

Example: 

UCC incurs £1,500 printing costs that need to be charged to ENT.

Journal to be raised;

          UCC.50.1.72.-    £1,500 (Cr)
          ENT.10.4.99.-    £1,000 (Dr)

          or                    

          UCC.00.1.72.-    £1,500 (Cr)
          ENT.E8.4.25.-    £1,500 (Dr)

Section 2

Intercompany internal recharging issues:

The university’s systems for creating automated recharges are unable to deal correctly with intercompany transactions. However, it is important that these standard systems / processes are used across the university group otherwise there may be cost implications, process issues, good practice problems;

In order to correctly deal with these issues manual intervention is required and regular checks need to be carried out to ensure everything is coded correctly within the financial system.

The companies mainly affected by this type of cost transfers are;

  • UEA Utilities Limited (mainly central stores issues, concept recharges)
  • Residences companies (mainly concept recharges)

However, other companies may be affected if they are recharged via a standard system within the university (such as catering recharges, telephone recharges, print room recharges, maintenance recharges or any stores issues).

Process for correctly dealing with internal recharges:

Where general recharge systems need to be used (such as concept, catering, print room, stores), the code to be charged must be a unique code within the university range of codes relating to the eventual company that will be charged. For example if it is a residences company, then a unique RES code should be used. If it relates to UEA Utilities Limited then a unique EBD code should be used.

The principle here is that the costs should have a unique level 1/2 code that identifies the company to be charged and allows a unique area within a company to be charged if necessary (i.e. there would be three codes required to cover each separate launderette within UEA Utilities limited).

At the end of each month, any charges to these unique sub-units need to be moved via a journal to the relevant company using the principles of intercompany transfers detailed in section 1 of this guidance note. (For example, if it is an associate company then a standard external income code should be used within the university code and a standard non payroll code within the company/entity, while for a subsidiary company you would use an intercompany income code and an intercompany expenditure code).

Examples of Internal Recharge Systems and Intercompany Transactions requires

Example 1:  

If Concept needed to charge UEA Student Residences Limited, then whoever places the job needs to give a unique Level 1/2 code that relates to this company i.e. RES.SR

Concept would raise the journal;

          Dr RES.SR.4.85.-
          Cr EBD.BA.1.50.-   (or equivalent account in Estates)

At the end of the month this would need to be reconciled by the RSD Finance Manager by doing the journal

          Cr RES.SR.1.70.-
          Dr USR.11.4.99.-

Example 2:  

If Concept needed to charge UEA Utilities BioMass project, then whoever places the job needs to give a unique Level 1/2 code that relates to this company i.e. EBD.BM

Concept would raise the journal;

          Dr EBD.BM.4.85.-
          Cr EBD.BA.1.50.-   (or equivalent account in Estates)

At the end of the month this would need to be reconciled by the Estates Finance Manager by doing the journal

          Cr EBD.BM.1.73.-
          Dr A10070 UTL.U.EM   (linked to UTL.00.8.07.-)

Example 3:

Income (funds) of £5,000 are received through the UEA Consulting Limited (UCC) and an academic within BIO has been granted authority to spend these funds.  The academic is using these funds to purchase items through Stores.  Project U12345 has been set-up within UCC to capture these costs.

It is good practice for the academic department to have a specific sub-unit set-up to capture these costs and intercompany adjustments (Note: the sub-unit must always net to zero).  In this case suggest using UC to denominate the company as UCC.  The academic places the order within this sub-unit, checking the GL code is available with the faculty finance office before visiting stores.

Once issued the stores system would automatically raise the following journal:

            Dr BIO.UC.4.81.-
            Cr SCI.17.4.81.IS (or equivalent account)

At the end of the month this would need to be reconciled by the Science Finance Office by doing the journal:

            Cr BIO.UC.1.70
            Dr U12345 UCC.E.IC (linked to UCC.C1.4.99.-)

Appendix 1

List of subsidiary companies (and the level 1 code on QL)

UEA Utilities Limited (UTL)
International Development UEA (ODG)
UEA Estates Services Limited (ESL)
UEA Enterprises Limited (ENT)
UEA Student Residences Limited (USR)
East Anglian University Residences Limited (EAR)
UEA Consulting Limited (UCC)
Incrops Limited (INC)
UEA Accommodation 1 Limited (ACE)
UEA Accommodation 2 Limited (ACF)
UEA INTO Holdings Limited (IHL)
Low Carbon Innovation Centre Limited (LCI)
Low Carbon Innovation Fund Limited (ERD)
ENVenture Associates Limited (EAL)
SYS Consulting Limited (SCL)
Carbon Connections UK Limited (CCF)

List of associate and other external companies within QL accounts (and the level 1 code on QL)

Association of Universities in the East of England (AUE)
East Anglian Business Environment Club (BEC)
ICENI Seedcorn Fund LLP (ICN)
Norwich Research Park Enterprises Ltd (NRE)
Norwich Research Park Science Ltd (NRS)
Norwich Powerhouse LLP (NPH)
Syrinix Limited Employee Benefit Trust (SYE)
Syrinix Limited (SYR)
University of East Anglia Superannuation Scheme (SSS)

List of Intercompany Entity Codes

E1 University of East Anglia
E2 International Development UEA
E3 UEA Utilities Limited
E4 UEA Estates Services Limited
E5 UEA Enterprises Limited
E6 UEA Student Residences Limited
E7 East Anglian University Residences Limited
E8 UEA Consulting Limited
EA Incrops Limited
EB Norwich Powerhouse LLP
ED Low Carbon Innovation Fund Limited
EE UEA Accommodation 1 Limited
EF UEA Accommodation 2 Limited
EH East Anglian Business Environment Club
EI INTO Holdings Limited
EJ Association of Universities in the East of England
EK Norwich Research Park Science Limited
EL Low Carbon Innovation Centre Limited
EM Syrinix Limited Employee Benefit Trust
EN ENVenture Associates Limited
EP ICENI Seedcorn Fund LLP
EQ Norwich Research Park Enterprises Limited
ES SYS Consulting Limited
EU University of East Anglia Superannuation Scheme
EX Carbon Connections UK Limited
EY Syrinix Limited