Calculating Goodwill in Local Currency - Consolidation Groups Europe and World

According to the International Financial Reporting Standards (IFRS), the assets must be managed in local currency. As a result, goodwill, an asset FS item, must also be managed in local currency too. In this lesson, let's focus on determining and calculating goodwill in local currency.  

The above figure details the local currency of investors and investees in the consolidation group Europe and the World. Note the historical exchange rates from when the investee company was purchased. We will use this rate for the dual currency translation of the investee's goodwill and calculating the related currency translation difference.  

In the following video, learn how to calculate goodwill in the local currency of the investee. 

The following steps are relevant for calculating goodwill in the local currency of the investee:  

1. Step 1: Additionally convert the investor's investment amount from group currency into the local currency of the investee.  
2. Step 2: Post the investment amount in the investee in local currency on the investee as a consolidation unit.  
3. Step 3A: Execute the 2101 - Cons. Of Invest. (Act.-Based) task for automatic currency translation of goodwill into local currency of the investee.
4. Step 3B: Depending on the Consolidation Group Level, Calculation of the Minorities in the Currency Translation Difference.

The figure below refers to the consolidation group Europe, with investor SW00 - Switzerland and investee DM00 - Denmark. See how it explains the conversion of the investment of investor SW00 of EUR 1650 (global currency) into the local currency DKK of the investee DM00. 

When calculating this value, DKK 8250 in our scenario, the value is stored in the ACDOCU table.  

Post the investment amount in the investee in local currency of DKK 8250 to the investee as the consolidation unit and the investor as the partner unit.  

You must enter the investment value in local currency of the investee to statistical FS item$INV_LC with investee DM00 as the consolidation unit and SW00 as the partner unit. Also, select Activity 01 - First Consolidation.  

The easiest way to upload this amount into the ACDOCU table is to add this information to the upload file of the investee’s local close.

Alternatively, you can also enter the posting of the investment value in the local currency of the investee to statistical FS item $INV_LC with investee DM00 as the consolidation unit and SW00 as the partner unit using the Post Group Journal Entries app. Also, select Activity 01 - First Consolidation. As the offset FS item, use the $000000OFF statistical FS item.  

When running task 2101 - Cons. Of Invest. (Act.-Based) in the Consolidation Monitor, the system automatically calculates the Goodwill in Local Currency and posts it on investee DM00, as seen in the figure above.

Doing so, the system generates a posting record in posting level 30 and local currency DKK: 163100 - Goodwill DKK 7305 to 310000 - Goodwill Elim DKK 7305.  

The figure explains how the system derives the 310000 - Goodwill Elim equity offset FS item.   

If you compare the exchange rates, the historical exchange rate was higher than the specific exchange rate. This means that the exchange rate decreased. This decreases the Goodwill value and results in a credit posting on the 163100 - Goodwill asset FS item. This is not a real loss, but only a currency fluctuation. So, the offsetting entry is not posted to a P&L FS item but debited to OCI Balance Sheet FS item 314800 - CTA Reserve Before Tax.  

The figure above explains by which role setting the OCI Balance Sheet FS item 314800 - CTA Reserve Before Tax is derived.

In the figure above, we refer to consolidation group World, and therefore minorities in the currency translation difference - referring to the314800 - CTA Reserve Before Tax equity FS item - are automatically calculated when the 2101 - Cons. Of Invest. (Act.-Based) task is executed in the consolidation monitor. 

As a result, the 321600 - N-CTA Reserve Before Tax equity FS item is debited. The 314800 - CTA Reserve Before Tax equity FS item is credited.

The figure above shows how the system derives the 321600 - N-CTA Reserve Before Tax minority offset FS item when executing the 2101 - Cons. Of Invest. (Act.-Based) task for consolidation group World.  

The figure above refers to the consolidation group World with investor DE00 - Germany and investee SW00 - Switzerland. It explains how the investment of investor DE00 in EUR (global currency) converts into the local currency CHF using the historic exchange rate from the day of purchase of consolidation unit SW00 - Switzerland.  

Using the second alternative, enter the posting of the investment value in the local currency of the investee on statistical FS item $INV_LC with investee SW00 as the consolidation unit and DE00 as the partner unit using the Post Group Journal Entries app. Also, select Activity 01 - First Consolidation. As an offset FS item, use the $000000OFF item.

When running task 2101 - Cons. Of Invest. (Act.-Based) in the Consolidation Monitor, the system calculates the Goodwill in Local Currency and posts it on investee SW00, as seen in the figure below.  

A posting record is generated in posting level 30 and local currency CHF: 163100 - Goodwill CHF 2336.80 to 310000 - Goodwill Elim CHF 2336.80.

If you compare the exchange rates, the historical exchange rate was higher than the specific exchange rate. The exchange rate decreased. This decreases the Goodwill value and results in a credit posting on the 163100 - Goodwill asset FS item. This is not a real loss, only a currency fluctuation, so the offsetting entry is not posted to a P&L FS item but debited to OCI Balance Sheet FS item 314800 - CTA Reserve Before Tax.