Consolidating Investments

Objectives

After completing this lesson, you will be able to:

  • Consolidate investments

Investment Structure for the Course Scenario

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.

One of the first steps in the consolidation process is to define the structure of the group being consolidated, which includes the consolidation method assignments and ownership percentages. In the example above, you have the following relationships:

  • Investment structure:
    • DE00 is the parent holding company for the World. Therefore, its ownership percentage is 100% in the World group.
    • DE00 owns 100% of US00.
    • DE00 owns 100% of BE00.
    • US00 is the parent holding company for America. Therefore, its ownership percentage is 100% in the America group.
    • BE00 is the parent holding company for Europe. Therefore, its ownership percentage is 100% in the Europe group.
    • US00 owns 35% of CA00.
    • BE00 owns 75% of FR00.
  • There are three consolidation groups because there's a business requirement to publish three sets of consolidated financial statements, one for each group:
    • World
    • America
    • Europe
  • In the America consolidation group, there are two consolidation units: CA00 and US00.

  • In the Europe consolidation group, there are two consolidation units: FR00 and BE00.

  • In the World consolidation group, there are five consolidation units: CA00, US00, FR00, BE00, and DE00.

Maintaining Ownership Data

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.

Import and Report Ownership Data

Business Scenario

Ownership data is needed to automate the consolidation of entities into consolidation groups.

What skills will you develop in this practice exercise?

  • Review the ownership data in the import file
  • Import the ownership assignments and percentages
  • Report on the ownership data

Task 1: Review the Source File and Import the Ownership Data

Task 2: Report on the Ownership Data

Purchase Method Elimination

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.

The course scenario focuses on the first consolidation entries for when a subsidiary is initially acquired. The first consolidation involves the elimination of the investment, the equity, and booking of goodwill and non-controlling interest. Subsequent consolidation deals with current-year retained earnings from the subsidiaries.

In the following animation, the entries related to the purchase method are outlined.

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: MenuTasksExecuteAll ConsGrpsUpdate 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.

Run the Purchase Method Elimination

Business Scenario

The purchase method is used to consolidate subsidiaries in consolidation groups when the ownership percentage is over 50%. You need to eliminate the investments in these entities. In addition, you need to eliminate the equity values, book the goodwill, and record the minority interest/non-controlling interest (NCI).

What skills will you develop in this practice exercise?

  • Run the Investment / Equity Elimination task

  • View the results in the log.

Report on Consolidated Results in Microsoft Excel

Business Scenario

Now that you've consolidated the investments, you need to report on the results.

What skills will you develop in this practice exercise?

  • Report on the eliminated data using SAP Analysis for Office for all consolidation units.
  • Report on the eliminated data using SAP Analysis for Office for the French consolidation unit.

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