Configuring First Consolidation for the Equity Method

You need a reclassification method for the first consolidation of an equity subsidiary. Before we configure the rules in the method, let’s identify the purpose of each rule:

• Rule 510: Eliminate the investment for the investor (US00).
• Rule 511: Book the investment to the held consolidation unit (CA00).
• Rule 540: Allocate the group share of the capital to investment at equity.
• Rule 541: Allocate the group share of the capital to prior years retained earnings.
• Rule 544: Allocate the group share of prior years retained earnings to investment at equity.
• Rule 571: Book goodwill to investment at equity.

As part of the equity method, rule 510 eliminates the investment in subsidiaries for the investor consolidation unit with an offset to Financial Statement (FS) item 1721OC.

Rule 510 generates the following entry for the United States (US00), the investor consolidation unit:

• Debit 1721OC Elimination of Investment for Owner Consolidation Units
• Credit 172100 Investment in Subsidiaries

In the following image, see how to configure the Settings in rule (Sequence number) 510:

1. Post to triggering unit: Post to the consolidation unit with the source (trigger) value (United States).
2. C/I Activity: Choose the First Consolidation activity (01) to process the consolidation units that have the same year and period for their first consolidation as in the current task execution.
3. Accounting Technique: Rule 510 eliminates the investment if the equity accounting technique (technical key 4) in the method matches the group structure in the current consolidation group.
4. Remove Predefined Filters: All data will be selected regardless of the consolidation method.
   Note

   In our scenario for ABC Corporation, this setting has no impact. However, the best practice content has Remove Predefined Filters selected because it allows selection of preparation for consolidation group change transactions.
5. Activity / Cons Acctng Part Unit: If selected, the system uses the accounting technique of the investee (CA00 in this case). As a result, only investments in equity subsidiaries are eliminated. If the Activity / Cons. Accounting Partner Unit is not selected, investments in the parent subsidiary are eliminated (not desired in this instance).

The remaining tabs in rule 510 are configured as follows:

• The trigger selection object Y-COI-INVESTMENTS picks the investment in FS item 172000 of the owning consolidation unit (US00).
• The Source Item Role is blank. A blank value generates a posting to the trigger FS item with a sign that is opposite to the trigger value. In this example, the trigger FS item is 172100. Because 172100 contains a debit, a credit posting is created when the method is run.
• The Dest Item Role S-INVEST-CLEAR-OWN, posts with the same sign as the trigger value. Role S-INVEST-CLEAR-OWN is assigned to FS item 1721OC (Elimination of Investment for Owner Consolidation Units). When this method is run, FS item 1721OC is debited.
• The Selection of Percentages is blank. Therefore, 100% of the trigger value is used for the postings.

Rule 511 posts the investment to the held consolidation unit (CA00), with an offset to Prior Years Retained Earnings.

• Debit 316000 (Prior Years Retained Earnings)
• Credit FS item 1721HC (Eliminate Investment for Held Consolidation Units)

In the Settings tab, select Post completely to partner unit. The parent consolidation unit (US00) is the triggering unit because they have the investment, however, the partner unit (CA00) receives the posting.

The remaining tabs in rule 511 are configured as follows:

• The trigger selection object Y-COI-INVESTMENTS picks the investment of the owning consolidation unit (US00).
• The Source Item Role S-INVEST-CLEAR-HELD is assigned to FS item 1721HC (the credit FS item).
• The subitem for the credit posting is 901 (incoming units).
• The Dest Item Role S-RETAINED-EARNING is assigned to FS item 316000 (the debit FS item).
• The subitem for the debit posting is 901.
• The Selection of Percentages is blank. Therefore, 100% of the trigger value is used for the postings.

Rule 540 allocates the group share of the capital to Investment at Equity with an offset to Non-Controlling Interest Prior Years Retained Earnings.

• Debit 171000 (Investment at Equity)
• Credit FS item 321100 (Non-Controlling Interest Prior years retained Earnings)

In the Settings tab, Post to triggering unit (default) is selected (CA00).

The remaining tabs in rule 540 are configured as follows:

• The trigger selection object Z-ME-CAPITAL picks the capital (FS item 311000) of the subsidiary (CA00).
• The Source Item Role, S-A-INV-AT-EQUITY is assigned to FS item 171000 (the debit FS item).
• The subitem for the debit posting is 901.
• The Dest Item Role S-NCI-RETAINED-EARN is assigned to FS item 321100 (the credit FS item).
• The subitem for the credit posting is 901.
• The Z-COI-PERCENTAGE selection looks up the group share percentage. 35% of the capital value will be posted.

Rule 541 allocates the group share of the capital to Prior Years Retained Earnings with an offset to Non-Controlling Interest Prior Years Retained Earnings.

• Debit 321100 (Non-Controlling Interest Prior Years Retained Earnings)
• Credit FS item 316000 (Prior Years Retained Earnings)

In the Settings tab, select Post to triggering unit (CA00).

The remaining tabs in rule 541 are configured as follows:

• The trigger selection object Z-ME-CAPITAL picks the capital (FS item 311000) of the subsidiary (CA00).
• The Source Item Role S-NCI-RETAINED-EARN is assigned to FS item 321100 (the debit FS item).
• The subitem for the debit posting is 901.
• The Dest Item Role S-RETAINED-EARNING is assigned to FS item 316000 (the credit FS item).
• The subitem for the credit posting is 901.
• The Z-COI-PERCENTAGE selection looks up the group share percentage. 35% of the capital value will be posted.

Rule 544 allocates the group share of the Prior Years Retained Earnings to Investment at Equity:

• Debit FS item 171000 (Investment at Equity)
• Credit FS item 321100 (Non-Controlling Interest Prior Years Retained Earnings)

In the Settings tab, Select Post to triggering unit (CA00).

The remaining tabs in rule 544 are configured as follows:

• The trigger selection object Z-ME-RET-EARN-INC picks the prior years retained earnings (FS item 316000) of the subsidiary (CA00).
• The Source Item Role S-A-INV-AT-EQUITY is assigned to FS item 171000 (the debit FS item).
• The subitem for the debit posting is 901.
• The Dest Item Role S-NCI-RETAINED-EARN is assigned to FS item 321100 (the credit FS item).
• The subitem for the credit posting is 901.
• The Z-COI-PERCENTAGE selection looks up the group share percentage. 35% of the capital value will be posted.

Rule 571 posts the goodwill to Investment at Equity for the investee (CA00) with an offset to Prior Years Retained Earnings:

• Debit FS item 171000 (Investment at Equity)
• Credit FS item 316000 (Prior Years Retained Earnings)

In the Settings tab, select Post to triggering unit (default).

The remaining tabs in rule 571 are configured as follows:

• The trigger selection object Z-GW-GGW-IN picks the goodwill (FS item 163000) of the subsidiary (CA00).
• The Source Item Role S-RETAINED-EARNING is assigned to FS item 316000 (the credit FS item).
• The subitem for the credit posting is 901 (Incoming units).
• The Dest Item Role S-A-INV-AT-EQUITY is assigned to FS item 171000 (the debit FS item).
• The subitem for the debit posting is 901.
• The Selection of Percentages is blank. Therefore, 100% of the goodwill value is posted.