Identifying Goodwill Settings

As of 2023, the system supports the following treatment types for positive goodwill:  

• Direct Elimination  
• Extraordinary Amortization (if an impairment test is performed).  

The system only supports the Direct Writeoff as treatment type for negative goodwill.  

Select Except. to activate method-specific settings of posting items for positive and negative goodwill. This overwrites the general Goodwill settings in customizing transaction CXI7 - Define Global Goodwill Items. This is the case in the content settings for the Equity Method. 

As an intermediate consolidation consultant, you must understand: 

• The structure and settings of this transaction 
• How they connect to the settings in the Consolidation of Investment methods. 

When selecting Post Goodwill at the Investee Unit, the goodwill posts to the Investee consolidation unit. If not selected, goodwill is posted to the investor consolidation unit.  

In automatic consolidation of investments (C/I) postings, the system directly eliminates a positive differential amount (goodwill) on a capital reserves account. You must manually execute the activation and the impairment posting using the Post Group Journal Entries app. Select Document Type 33 since 32 is for automatic posting only. 

The manual posting will be similar to the following business example:  

1. During the first consolidation, the system automatically posts goodwill of + 500 EUR to 310000 - Goodwill Elimination.  
2. Then, post a debit posting of 500 EUR on 163100 - Goodwill (AST) to a credit posting of 500 EUR on 310000 - Goodwill Elimination (LEQ).  
3. Then, execute an impairment test.  
4. In the course scenario, we will stop, when the2101 - Consolidation Of Investments (Activity-Based) task has calculated 310000 - Goodwill Elimination.  

The setting refers to a consolidation method with the setting of Direct Elimination for positive goodwill.

The S-GOODWILL-ELIM role is assigned to the 310000 – Goodwill Elimination FS item.

If in a consolidation method, Direct Elimination is selected for positive goodwill, the system writes the calculated positive amount of Goodwill to this FS item, when the First Consolidation is executed using the 2101 – Cons of Invest (Act.-Based) task in the Consolidation Monitor.

The setting refers to a consolidation method with the setting of Direct Elimination for negative goodwill. However according to IFRS, this setting is not allowed for negative goodwill. So the following setting is not relevant in the standard solution.

The S-GOODWILL-ELIM role is assigned to the 310000 – Goodwill Elimination FS item.

From a mere technical point of view, if in a consolidation method Direct Elimination was selected for negative Goodwill, the calculated negative amount of Goodwill would be written to this FS item, when the First Consolidation using the 2101 – Cons of Invest (Act.-Based) task in the Consolidation Monitor was executed.

(Extraordinary) Amortization of Goodwill: Relevant for Positive Goodwill These settings refer to a consolidation method where you select Extraordinary Amortization for positive goodwill.

Amortization of goodwill can take place using a regular amortization of goodwill or a one-time amortization of goodwill (as part of an impairment test).

There is no functional differentiation in the system, which is why there is only one setting for the amortization of goodwill.

Acquisition Item:Role ID: S-A-Goodwill . The role is assigned to the 163100 - Goodwill FS item. The amount of Goodwill calculated during the first consolidation is recorded in this FS item. 

Offsetting Item of Orig. Cost:Role Item: S-GOODWILL-ELIM. This role is assigned to the310000 - Goodwill Elimination FS item.  

The following scenario is relevant for this setting:

1. First, execute the2101 - Cons of Invest (Activity-Based) task in the Consolidation Monitor.  
2. Then, manually enter a goodwill amount on statistical item $GW_GV.  
3. Execute the 2101 - Cons of Invest (Act.-Based) task again.  

In this scenario, the statistical item is an internal trigger that posts the goodwill delta to the 163100 - Goodwill FS item (Acquisition Item) versus the310000 - Goodwill Elim FS item (Offsetting Item of Orig. Cost).   

• Role Item: S-A-GOODWILL-IMP assigned to the 163190 - Goodwill, Impairment FS item  
• Role Item: S-P-GOODWILL-IMP assigned to the572000-Goodwill Impairment FS item.  

If you execute an Impairment Test, and the goodwill must be reduced, you must enter it manually on statistical item $GW_IMP.

Then, execute the2101 - Cons of Invest (Activity-Based). Statistical item $GW_IMP serves as a trigger for 163190 - Goodwill Impairment FS Item.

The system then posts on the163190 - Goodwill Impairment FS item versus572000 - Goodwill Impairment, which is a Profit and Loss (P&L) FS item.

As a result, the reporting shows the original goodwill on the 163100-Goodwill FS item and the impairment result on the 163190-Goodwill Impairment FS item.   

Writeup Item:Role Item: S-P-BARGAIN-PUR. This role refers to an increase in Goodwill, which is no longer allowed in IFRS. So, this setting is not relevant to the standard solution.

The settings of this section refer to the same business logic as the figure before but are relevant for negative goodwill only. 

Amortization exp. Item is used forDirect Writeoff of negative goodwill. See the next scenario.

Negative goodwill occurs after purchasing a company below value. Here, the goodwill is written off as a gain. This value goes directly into the profit and loss (P&L).

Amortization of negative goodwill - Amortization Exp. Item:Role Item: S-P-BARGAIN-PUR. This role is assigned to the 516000 - Gain on Bargain Purchase FS item.  

With IFRS, only Direct Write-off of negative goodwill is allowed as a setting of a consolidation method.

So, if a consolidation method contains the setting Direct Writeoff for negative goodwill, the complete amount of this negative goodwill is written off during the first consolidation. The P&L FS item 516000 - Gain on Bargain Purchase is used to post the complete direct write-off. 

Goodwill in Local Currency of the Investee  

When you use a consolidation of investment method with the settingExtraordinary Amortization for positive goodwill and additionally select Carry Goodwill in Local Currency, you can make it possible to manage goodwill in local currency as required by IFRS. 

In the delivered content, method 12 (Purchase GWLC direct share) and method 22 (Equity GWLC direct share) allow the management of goodwill in local currency as required by IFRS.   

The Goodwill in Local Currency of the Investee approach:  

The activity-based consolidation of investments task calculates the goodwill in local currency of the investee at the historical rate based on the ratio between the following:  

• The value of investment in local currency of the investee is entered on statistical item $INV_LC (consolidation unit = investee and partner = investor). 
• The value in group currency reported at the investor on FS item 172100 - Investment.  
• The impairment of goodwill can be entered on statistical item $GW_IMP in local currency using document type 36 and Activity 03 - Amortization of goodwill. 
• The activity-based consolidation of investments task will post entries in local and group currency based on this statistical FS item.  
• Currency translation variations on goodwill (gross and impairment) are posted automatically by the activity-based consolidation of investments task on activity 23 - Currency Translation of Goodwill. 

For the Purchase Method, goodwill is posted in local and group currency to asset FS items 163100 - Goodwill and 163190 - Goodwill, Impairment.

The Equity Method works the same but posts entries in group currency only.