Consolidating Investments

Now that we’ve eliminated the intercompany transactions, we can turn our attention to consolidation of investments.

Your corporation has many subsidiaries and you need to produce consolidated financial statements. Our goal is to combine the balance sheet and income statement for the parent and its subsidiaries into one corporate group as if they were liquidated. Consolidation of investments is referring to the accounting concepts and the accounting entries associated with the ownership eliminations and postings.

Consolidation of investments for the rule-based approach is run from the consolidation monitor via the Investments / Equity Elimination task.

In our course scenario, the corporate holding company (Germany) owns 100% of the Belgium subsidiary. The Belgium subsidiary owns 75% of the French subsidiary. Because Belgium owns more than 50% of the French subsidiary, Belgium is the controlling parent and the relevant accounting practice is referred to as the purchase method. In the purchase method, there are required adjusting entries for the investment, the goodwill, and the non-controlling interest to consolidate the French balance sheet and income statement into the corporate financial statements.

In our scenario, we’ll import a group journal in order to record the initial ownership percentages (group shares).

Ownership percentages are imported into ACDOCU with a unique document type and a statistical FS item.

• Group share data includes the ownership percentage for a consolidation unit in a consolidation group. If a consolidation unit is consolidated in multiple groups, the group share percentage value is entered on each group. This data is stored by fiscal year period and version.

• Group share data can be entered manually via the Post Group Journal Entries app and uploaded via the Import Group Journal Entries app.

• When working with group share data, apply the following guidelines:
  • Use Document Type 39 and Posting Level 30.
  • Always include a consolidation group.
  • Use the Quantity (QuantityInBaseUnit) field with PRC (Group proportion) as the unit of measure.
  • Use group share FS item S00001.

• The system processes the group share data on a year-to-date basis. If the group share changes, only the delta values need to be posted. For example, a parent company acquires 80% of a subsidiary in January. In February, they still own 80% so no data needs to be entered. However, if in March they own 81%, an additional 1% is posted.

Ownership data can be analyzed with the Group Data Analysis app:

• Add quantity to the columns.
• Include consolidation group and unit in the rows.
• Use the axis properties to display the row dimensions hierarchically.
• Use the grid properties to change the format to odd and even row styles.

In our business scenario, we’re consolidating investments with the purchase method using the rule-based approach. The purchase method is appropriate when the parent company owns more than 50% of another subsidiary. In the following example, a Belgium (BE00) company purchased 75% of a French (FR00) subsidiary for 150,000 EUR. The French subsidiary has equity in the form of common stock and prior-year retained earnings. Consolidation of investments is run from the consolidation monitor via the Investments / Equity Elimination task.

The values shown in the Purchase method - before example depict the situation before the Investment / Equity Elimination task is run.

1. Investment by the parent: 150,000.
2. Equity in the subsidiary: -68,090 common stock and -41,640 prior-year retained earnings.

When the Investments / Equity Elimination task is run, the log is used to validate the trigger and journal entry amounts.

In the following image:

1. The parent is BE02.
2. The subsidiary is FR02.
3. The investment is 150.000.
4. The elimination of the investment is -150.000.
5. The offset to the elimination is 150.000.

Note

In the Investment and equity elimination log - Belgium example, you can see that the task was run for the World consolidation group. In order to run the Investments / Equity Elimination task for multiple consolidation groups, follow these steps:

1. Go to the Consolidation Monitor.
2. Remove the Consolidation Group value from your Global Parameters.
3. Select the Investments / Equity Elimination task.
4. Choose: Menu → Tasks → Execute → All ConsGrps → Update Run.

In the following image:

1. The consolidation unit is FR00.
2. The goodwill elimination is 67.702.
3. The capital elimination is 68.090.
4. The prior-year retained earnings elimination is 41.640.
5. The non-controlling interest amount is -27.432.
6. The investment elimination is -150.000.

In the Investment and equity elimination log - France example, FS item was grouped in order to see the total by FS item. These are the acronym definitions:

• PYRE - prior year retained earnings
• NIC - Non-controlling interest

Now that the Investments / Equity Elimination task has been run, we can view the consolidated balance sheet:

1. Posting level 00: Reported data.
2. Posting level 01: Group adjustments.
3. Posting level 20: Intercompany eliminations.
4. Posting level 30: Consolidation of investments.
5. Posting level #: Released data from accounting.

Note

In the Consolidated balance sheet figure, the results are being viewed in SAP Analysis for Office, however the results can also be reported on from the Group Data Analysis app.

The entries associated with the Investments / Equity Elimination task are included in the Posting Level30 values.