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Parent’B’holdsaninvestmentof500unitsintheaffiliate’E’andreportsthisin

its balance sheet.

Affiliate’E’showscommonstockof1,000units. However,itsfinancialdatais

notincludedinthegroup’saggregatedbalancesheet.

Becausethegroupsharein’E’is40%,thesystemcomputesaminorityshareof

600unitsincommonstockof’E’. Thesettlementbetweentheinvestmentandthe

equityleadstoadifferentialof100units(500-400=100).

Thesystemgeneratesanentry,whichproportionatelyadjuststheinvestmentof

theparent ’B’ by 100units, and reportstheexcessamountasgoodwill. Inthis

case, it uses the two-line method.

Amortization

Figure 106: Amortization of Goodwill(Equity Method)

The amortization of goodwill (100 units over 5 years = 20 units) is posted at

parent ’B’.

Inthisexample, theamortizedamountiscrediteddirectlytothegoodwillitem.

Theoffsettingentryischargedtotheamortizationexpense(seeentryI).

Becausetheactivityaffectsnetincome,theannualnetincomeitemsinboththe

balancesheetandtheincomestatementareautomaticallyadjusted(seeentryII).

As in amortization using the purchase method, the adjustment to annual net

incomeispostedtothestatisticalitems(seeentryIII).

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AC660 Lesson: Equity Method

Subsequent consolidation

Figure107: CustomizingSettings(EquityMethod,Subseq. Cons)

Subsequent consolidation intheequity method adjuststhe parent’sinvestment

sharebythevaluesthatarecollectedinthereporteddata.

For thisreason, at first youdefinethescopeof thereported datafortheequity

method postings.

Next, you specify the posting items for each scope. For each scope, you also

specify the following items:

• Offsetting item

• Negative investment book value

• Statistical equity

In some cases, these items must be enhanced in the consolidation chart of

accounts. Thelattertwoitemshavedifferentcharacteristicsfordifferentscopes

of reported data.

Foreachscope,youalsodefinereporteditemsiftheequityholdingsadjustment

data is collected from the reported equity data. The collection can only be

automaticiftheitemsdefinedforeachscopeareunambiguous.

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Figure 108: Accounting Techniques - Comparison

Subsequent consolidation intheequitymethodadjusts the parent’sinvestment

sharebythevaluesthatarecollectedinthereporteddata.

Forthisreason,atfirstyoudefinethescopeofreporteddatafortheequitymethod

postings.

Next, you specify the posting items for each scope. For each scope, you also

specify the following items:

Offsetting item

• Negative investment book value

• Statistical equity

In some cases, these items must be enhanced in the consolidation chart of

accounts. Thelattertwoitemshavedifferentcharacteristicsfordifferentscopes

of reported data.

Foreachscope,youalsodefinereporteditemsiftheequityholdingsadjustment

data is collected from the reported equity data. The collection can only be

automaticiftheitemsdefinedforeachscopeareunambiguous.

Demonstration: Customizing Settings in the IMG

Purpose

To demonstrate customizing settingsin theIMG

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AC660 Lesson: Equity Method

System Data

System:

Client:

UserID:

Password:

Setupinstructions:

1. The utilization of consolidation of investments must support the equity

method.

2. Createtheequitymethod, explainthedifferencesbetweenthebookvalue

(one-lineconsolidation)andproportionofequity(two-lineconsolidation)

methods. If thebookvaluemethodisused, aspecialmanagerial analysis

mayhavetobecreatedforthegoodwill(notinthestandardsystem).

3. Scope of reported data for equity (annual net income, dividend, bonus

management, currency translation differences, goodwill clearing in the

consolidationgroup, correctionofpreviousperiod).

4. Determine thefinancial statement itemsfor the equity postings. Explain

thatfinancialstatementitemshavetobedefinedforeachdeterminedscope

of reported data. The differences lie in the offsetting item, the negative

investment book value(this means a separate financial statement item is

required inthestatistical areafor thenegative investment book valuefor

eachscopeofreporteddata),andthestatisticalequity(whichalsorequires

separatestatisticalfinancialstatementitemsforeachscopeofreporteddata).

5. Determine the reported items for equity holdings adjustments. Make the

entriesforeachscopeofreportdata,theentriesmustbeclearlyidentifiable

(only the applies to annual net income, dividend, bonus management,

and currency translation). These are only needed when equity holdings

adjustmentshastobetakenfromthereportedequitydata.

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Comparison between HGB and US GAAP/IAS

Figure 109: First Consolidation - HGBvs. USGAAP/IAS

SAP supports the consolidation of investments according to German HGB as

well as US GAAP / IAS.

Both methods can be used simultaneously.

The methods are selected in the definition of the consolidation of investments

method.

Figure110: Subseq. Consolidation -HGBvs. USGAAP/IAS

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AC660 Lesson: Equity Method

The differences between HGB and US GAAP/IAS in first consolidation in

a multiple-level group with minority interests reappear during subsequent

consolidationandallother, morecomplexactivities.

Aftergoodwilliscompletelyamortized,theminorityinterestinthegroupbecomes

the same for both HGB and US GAAP / IAS.

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AC660 Lesson: Equity Method

Exercise 14: Consolidation of Investments

297

– Equity Method

Exercise Duration: 30 Minutes

Exercise Objectives

After completingthisexercise, youwillbeableto:

• Define financial data types

• MaketheCustomizingsettingsrequiredtorunthetaskfromthemonitor

Business Example

ThesteeringcommitteejustdecidedthatconsolidationunitEisnolongertobe

consolidatedusingthepurchasemethod. Fromnowontheequitymethodisto

be used.

Task 1:

1. Define the method EQUIT for the equity method (with two-line

consolidation) with the following properties:

a) Additionsarecalculatedusingthedirectshare(incompliancewithUS

GAAP)

b) Amortization of goodwill (positive and negative), life = 5 years, no

thresholdvalue,amortizationstartsatthebeginningofthecurrentrangeof

periods

c) Item for positive/negative goodwill: 181300

Choosetheappropriatesubitemsforadditions,amortizationsandwrite-ups

d) Item foramortization andwrite-ups: 311830

Specify the functional area “administration”

e)Statisticalitemfortheamortizationofpositivegoodwill: 933100

f)Statisticalitemforcurrenytranslationdifference: 940000

Task 2:

1. AssignthemethodtoconsolidationunitEintheconsolidationgroupG2.

Continued on next page

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Unit5: InterunitElimination&ConsolidationofInvestments AC660

Task 3:

1. Scope of reported data:

Checkthesettingsforthescopeofreporteddatafortheequitymethod,but

do not make any changes.

Theparentunit’sinvestmentbookvalueistobeupdatedbydisclosuresof:

a) the annual net income

b)distributionsofdividendsonbehalfofthe“equitycompany”

Makea note of the scopes of reported data.

Task 4:

1. Maintaining reported equity items:

Definethereportedequityitemsforequityholdingsadjustmentsasfollows:

Reported annual net income: 251200 120

Reporteddistributionsof dividends: 251600 140

Task 5:

1. Executing the task for G2:

a). Before executing the consolidation of investments, go to the global

settingsandspecify/reviewthatthedataforsubsequentconsolidationswith

theequitymethodistobereadfromthereportedequitydataforequity.

b)ThenexecutetaskC/IforconsolidationgroupG2.

c) What is the amount of the differential from the first consolidation of

unit E?

Whatistheamountoftheamortizationofthedifferential(excess)ofBinE?

Task 6:

1. Executing the task for G1:

BlockthetaskforG2andexecutethesametaskforG1.

Afterwards, block the task for G1, too.

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AC660 Lesson: Equity Method

Solution 14: Consolidation of Investments

– Equity Method

Task 1:

1. Define the method EQUIT for the equity method (with two-line

consolidation) with the following properties:

a) Additionsarecalculatedusingthedirectshare(incompliancewithUS

GAAP)

b) Amortization of goodwill (positive and negative), life = 5 years, no

thresholdvalue,amortizationstartsatthebeginningofthecurrentrangeof

periods

c) Item for positive/negative goodwill: 181300

Choosetheappropriatesubitemsforadditions,amortizationsandwrite-ups

d) Item foramortization andwrite-ups: 311830

Specify the functional area “administration”

e)Statisticalitemfortheamortizationofpositivegoodwill: 933100

f)Statisticalitemforcurrenytranslationdifference: 940000

a) Defining the method:

Define the equity method similar to the solution for the purchase

method,usingthedifferentFSitemsandsubitems

CompletingtheUtilizationofConsolidationofInvestments

Menu Path:Tools→AcceleratedSAP→Customizing→Execute

Project → SAP Reference IMG → Enterprise Controlling →

Consolidation→ConsolidationFunctions→AutomaticPosting→

Consolidationofinvestments→DetermineSystemUtilizationforC/I

EnsurethattheaccountingtechniqueEquityisspecified.

Definingaconsolidationofinvestmentsmethod:

MenuPath: Tools→AcceleratedSAP→Customizing→Execute

Project → SAP Reference IMG → Enterprise Controlling →

Consolidation→ConsolidationFunctions→AutomaticPosting→

Consolidationofinvestments→→Methods→Definemethods

SelectNewentriesandcreatethenewmethodEQUITY

a) Accounting technique: Equity Method

Continued on next page

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Unit5: InterunitElimination&ConsolidationofInvestments AC660

b) Additions: calculateusing “directshares”

Hint: Thetreatmentofgoodwillalreadydisplaystheoption

Amortization(forpositiveandnegativegoodwill),asspecified

in C/I utilization.

Field/Data Type Value

Accounting technique Equity Method

CalculateAcquitionsUsing: “directshares”

Press Enter.

Amortization of goodwill and negative 5

goodwill sections:

Amortizablelife,numberofyears 2

Begin amortization

Caution: DonotselectThresholdvalue.

Notethatyoucanmaintainadditionalamortizationdataonly

after pressing Enter.

Save your entries.

Toenterthechartofaccounts-basedsettingsforthemethod,chooseFS

itemstotherightofthemethoddescription. SelectNewEntries. Enter

thefollowingFSitemsforBOTHtheAmortizationofgoodwilland

Amortization of Negative goodwill.

Field/Data Type Value

Acquisition Item 181300

Subitem 120

Accumulatedamortizationitem 181300

Subitem, amortization 220

Subitem, write-ups 275

Amortization Exp. item 311830

Subitem (Functional area) 0003

(Administration)

Continued on next page

374

Field/Data Type	Value
Accounting technique CalculateAcquitionsUsing: Press Enter. Amortization of goodwill and negative goodwill sections: Amortizablelife,numberofyears Begin amortization	Equity Method “directshares” 5 2

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AC660 Lesson: Equity Method

Field/Data Type Value

Writeup Item 311830

Subitem (Functional area) 0003

(Administration)

Stat. itemforpos. goodwill 933100

Stat. itemforneg. goodwill 933200

Stat. itemcurr. trans. diff. 940000

Save your entries.

Task 2:

1. AssignthemethodtoconsolidationunitEintheconsolidationgroupG2.

a) Assigning the method:

InthemethodhierarchyforconsolidationunitE,changethemethod

PURCH to EQUIT.

MenuPath: Tools→AcceleratedSAP→Customizing→Execute

Project → SAP Reference IMG → Enterprise Controlling →

Consolidation→ConsolidationFunctions→AutomaticPosting→

Consolidationofinvestments→Methods→Assignmethodstothe

consolidationunits→Editmethodhierarchies

a) Expand your hierarchy, select consolidation unit E, and choose

Change.

b)Inthedetailscreen,assignmethodEQUITYtoconsolidationunitE.

Save your entries.

Task 3:

1. Scope of reported data:

Checkthesettingsforthescopeofreporteddatafortheequitymethod,but

do not make any changes.

Theparentunit’sinvestmentbookvalueistobeupdatedbydisclosuresof:

a) the annual net income

b)distributionsofdividendsonbehalfofthe“equitycompany”

Continued on next page

375

Field/Data Type	Value
Writeup Item Subitem (Functional area) Stat. itemforpos. goodwill Stat. itemforneg. goodwill Stat. itemcurr. trans. diff.	311830 0003 (Administration) 933100 933200 940000

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Unit5: InterunitElimination&ConsolidationofInvestments AC660

Makea note of the scopes of reported data.

a) Scope of reported data:

Toexaminethescopesof reporteddata, goto:

MenuPath: Tools→AcceleratedSAP→Customizing→Execute

Project → SAP Reference IMG → Enterprise Controlling →

Consolidation → Consolidation Functions → Automatic Posting

→ Consolidation ofinvestments→Specifyscopeof reported data

for equity method

The scope entails:

1. Annual net income

2. Dividends

No adjustments should be required.

Task 4:

1. Maintaining reported equity items:

Definethereportedequityitemsforequityholdingsadjustmentsasfollows:

Reported annual net income: 251200 120

Reporteddistributionsof dividends: 251600 140

a) Maintaining reported equity items:

MenuPath: Tools→AcceleratedSAP→Customizing→Execute

Project → SAP Reference IMG → Enterprise Controlling →

Consolidation→ConsolidationFunctions→AutomaticPosting→

Consolidation of investments → Activities → Reported Items for

AutomaticActivityRecognition→Specifyreporteditemsforequity

holdings adjustments

Select New Entries

Forscope1definetheitem251200withsubitem120.

Forscope2definetheitem251600withsubitem140.

Save your entries.

Task 5:

1. Executing the task for G2:

Continued on next page

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AC660 Lesson: Equity Method

a). Before executing the consolidation of investments, go to the global

settingsandspecify/reviewthatthedataforsubsequentconsolidationswith

theequitymethodistobereadfromthereportedequitydataforequity.

b)ThenexecutetaskC/IforconsolidationgroupG2.

c) What is the amount of the differential from the first consolidation of

unit E?

Whatistheamountoftheamortizationofthedifferential(excess)ofBinE?

a) Executing the task for G2:

MenuPath: Tools→AcceleratedSAP→Customizing→Execute

Project → SAP Reference IMG → Enterprise Controlling →

Consolidation→ConsolidationFunctions→AutomaticPosting→

Consolidationofinvestments→MakeGlobalSettings

IntheGetearningsfromwindow, choosethe“reportedequitydata”

option. Save.

You execute the task in the consolidation monitor by placing the

cursorat thecross-section between the taskandtheconsolidation

group G2. Choose Test run.

TheamountofthedifferentialfromthefirstconsolidationofunitEis

USD 400.

TheamortizationoftheexcessamountisUSD20.

This is computed as follows: The differential from the first

consolidation of 400 is amortized over a period of 5 years, which

equates to80 per year, or 20 per quarter.

Now execute the task in theconsolidation monitorby placing the

cursorat thecross-section between the taskandtheconsolidation

groupG1. ChooseUpdaterun. Blocktaskwhencompleted.

Task 6:

1. Executing the task for G1:

BlockthetaskforG2andexecutethesametaskforG1.

Afterwards, block the task for G1, too.

a) Executing the task for G1:

BlockthetaskforG2andexecutethesametaskforG1.

Afterwards, block the task for G1, too.

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AC660 Lesson: Equity Method

Exercise 15: Validation

305

Exercise Duration: 20 Minutes

Exercise Objectives

After completingthisexercise, youwillbeableto:

• Define financial data types

• MaketheCustomizingsettingsrequiredtorunthetaskfromthemonitor

Business Example

Task 1:

Assignment:

1. Inordertochecktheconsolidateddata,youusethesamevalidationVXY

(whereXY=50+yourgroupnumber)thatyoucreatedinDataCollection,

topic Validation I.

You now assign the validation to cons groups G1 and G2, for period

categories 2 and 3.

Task 2:

Task:

1. Forthisvalidation,definethetaskCONSVALandassignittotheexisting

task group CONS.

Thetranslationshouldberunasthelasttaskandbeautomaticallylocked

after it has run without errors.

Task 3:

Execution:

1. RunthevalidationforconsgroupG1intheconsolidationmonitor.

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Solution 15: Validation

Task 1:

Assignment:

1. Inordertochecktheconsolidateddata, youusethesamevalidationVXY

(whereXY=50+yourgroupnumber)thatyoucreatedinDataCollection,

topic Validation I.

You now assign the validation to cons groups G1 and G2, for period

categories 2 and 3.

a) Assignment:

AssignthevalidationtoconsolidationgroupsG1andG2:

MenuPath: Tools→AcceleratedSAP→Customizing→Execute

Project → SAP Reference IMG → Enterprise Controlling →

Consolidation → Consolidation Functions → Validation of

ConsolidatedData→AssignValidationstoConsolidationGroups

ChooseNewentriesandmakethefollowingsettings:

Field/Data Type Value

Cons group G1 and G2

Period cat. 2 and 3

Val. CG VXY (XY = 50 + your group

number, which is the validation

you alreadycreated)

Save the entry.

Task 2:

Task:

1. Forthisvalidation,definethetaskCONSVALandassignittotheexisting

task group CONS.

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Field/Data Type	Value
Cons group Period cat. Val. CG	G1 and G2 2 and 3 VXY (XY = 50 + your group number, which is the validation you alreadycreated)

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AC660 Lesson: Equity Method

Thetranslationshouldberunasthelasttaskandbeautomaticallylocked

after it has run without errors.

a) Task:

MenuPath: Tools→AcceleratedSAP→Customizing→Execute

Project → SAP Reference IMG → Enterprise Controlling →

Consolidation → Consolidation Functions → Validation of

Consolidated Data → Define Task

Makethefollowingsettingsfor yournewentry:

Field/Data Type Value

Task CONS VAL

Short text Val. GC

Medium text Validationconsolidateddata

Save the entry.

Assign the new task to the task group:

MenuPath: Tools→AcceleratedSAP→Customizing→Execute

Project → SAP Reference IMG → Enterprise Controlling →

Consolidation→ConsolidationFunctions→ConsolidationMonitor

→ Define Task Group

Select the task group CONS, go to Assign tasks to task group, and

make the following new entry:

Field/Data Type Value

Task CONS VAL

Automaticblocking select theindicator

Save your entry.

Continued on next page

381

Field/Data Type	Value
Task Short text Medium text	CONS VAL Val. GC Validationconsolidateddata

Field/Data Type	Value
Task Automaticblocking	CONS VAL select theindicator

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Unit5: InterunitElimination&ConsolidationofInvestments AC660

Task 3:

Execution:

1. RunthevalidationforconsgroupG1intheconsolidationmonitor.

a) Execution:

YoucanexecutetaskValid. GCintheconsolidationmonitorbyplacing

thecursoratthecross-sectionbetweenthetaskandtheconsolidation

group. Choose Update run.

MenuPath: Accounting→EnterpriseControlling→Consolidation

→ Consolidation → Monitor

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Lesson Summary

You should now be able to:

• Explain the equity method

• Describesubsequentconsolidationinequitymethod

• Compare between HGB and US GAAP/IAS for first and subsequent

consolidation

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Unit5: InterunitElimination&ConsolidationofInvestments AC660

Lesson: Reclassification

Lesson Duration: 20 Minutes

310

Lesson Overview

Thislessonprovidesanoverviewofthefeaturesandusesofreclassification. You

willlearnaboutthereclassificationofsalesrevenueandthenettingofreceivables

and payables in reclassifications. In addition, you will learn about periodic

reclassificationandthedebit/creditsign-triggeredreclassification.

Lesson Objectives

After completingthislesson, you will beable to:

• Describe the benefits of reclassification

• Differentiatebetween types of reclassification

• Explain periodic reclassification

Provideinformationonreclassificationandthevariousdependenciesandfactors

thatinfluencereclassification. Bringoutthefactthatreclassificationpostingscan

onlybeperiodinthelastperiodoftheconsolidationfrequencyinterval. Discuss

periodic reclassification.

Reclassification can be required to adjust the report data of the consolidation

unitstothegrouprequirements. Reclassificationofconsolidateddatacouldalso

be necessary.

Reclassification can be posted either automatically (consolidation monitor) or

manually.

Duringreclassification,valuesfromone financialstatementitemoritemsetare

reclassifiedtoadifferentfinancialstatementitemwithareverseddebit/creditsign.

Intheprocess,youcanonlyreclassifyapercentageshareifyouwantto.

Example for reclassification:

Theconsunit reportsinventory valuesfinishedproducts, that areregroupedin

groupaccounting intheitem semi-finishedproducts.

Business Example

ThegroupG1planstointroducetheSAPConsolidationbytheendofthisyear.

Youhavebeenaskedtoreclassifythevaluesofthefinancialstatement.

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AC660 Lesson: Reclassification

Customization and Application of Reclassification

Reclassification

This is the technical overview of the various dependencies and factors that

influence reclassification.

Enterareclassificationruleanddefinethefollowing:

• The triggering financial statement item (with sub-assignments, where

applicable) or item set

• The from/to financial statement item (with sub-assignments, where

applicable)

• Percentage for reclassification

Youcanlimitthereclassificationofitemvaluestosubitemsand/orpartnerunits.

In this case, onlythe item valueswiththe specified additional information are

reclassified.

Thendefineareclassificationmethodandtaskandassignthemtoadocumenttype.

Startthetaskintheconsolidationmonitor. Alogisoutput.

Reclassification of Sales Revenue

Inthisgraphic,thevaluesfromfinancialstatementitemSalesrevenuearetobe

reclassifiedtofinancialstatementitemCapitalizedgoodsonownaccount.

ThetriggeringfinancialstatementitemisTangiblefixedassets. Theunderlying

businesstransactionistheacquisitionofafixedassetwiththepostingrecords

• Unit A: Tangible fixed assets to payables,

• Unit B: Receivables to sales revenue.

The debit posting tofinancial statementitemTangiblefixed assetstriggersthe

reclassification.

Therevenueshavetobecleared,buttheyhavebeenpostedtocredits,whichis

whythefinancialstatementitemCapitalizedgoodsonownaccountispostedto

(fromitem),andfinancialstatementitemRevenue(toitem)isreducedtozero.

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This results in the definition of the from financial statement itemCapitalized

goodsonownaccountortoitemRevenuesintheconfiguration.

Hint: Systemdocumentation: Reclassification:

Normal reclassificationhasthreebasicoptions:

• Youcanenterafromfinancialstatementitemthatdiffersfromthe

triggering financial statement item.

• Youcanleavethefromfinancialstatementitemblank. Inthiscase,

thetriggeringfinancialstatementitemisusedasthefromfinancial

statement item (inheritance).

• Youcanleavethefromfinancialstatement itemblankanddefine

other sub-assignments than the ones in the triggering financial

statement item.

Incontrast, youalwayshavetoenterthefromfinancialstatementitem

duringcredit/debit sign-specificreclassification.

Byenteringacredit/debitsign,youcanspecifythatreclassificationshould

onlybeperformedwhenthevalueofthetriggeringfinancial statement

itemortriggeringitemsethasthedebit/creditsignyouselected.

Intheprocess,differentreclassificationlogicappliesthanduringnormal

reclassification: Thevalueof thetriggeringfinancial statementitem is

notreclassified. Instead,thevalueofthefromfinancialstatementitemis

clearedwithareverseddebit/creditsigninthefromfinancialstatement

itemandreclassifiedtothetofinancialstatementitem.

Examples:

• Whenthedebit/creditsignofthevaluechangesfrom+to-,thenthe

valueof onefinancialstatementitemisreclassifiedtoadifferent

financial statement item

• ReceivablesandpayablesarenettedDependingonthedebit/credit

signofthenettedvalue,itisreclassifiedtoeitherthereceivablesor

thepayablesitem. Inthissituation, you needtwo reclassification

rules with debit/credit sign - and +.

ReclassificationsforTotalingMultipleItemValues

The subgroup and the consolidated group appear in the upper left. Company

F hasreceivables and payableswith G,D, and C, Gand D belong tothesame

consolidation group as F.

Cisanexternalcompanywithregardtotheconsolidationgroup(DFG).

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AC660 Lesson: Reclassification

DandFhavemorereceivablesagainstCthanviceversa,thetotalreceivablesis

250. Iftheresultispositive,thenthepayablemustbedefinedasafromitem.

Hint: Reasons:

The payables are reduced to 0 through reclassification. The “to”

item (receivables) is posted to with 50 in credit. This results in a

subgroup-related reportof receivables(250).

ReclassificationscanbeexecutedinsteadoftheeliminationofIUpayables

andreceivables. Thendocumentsaregeneratedwithpostinglevel20. In

thisallthepartnerrelationshipsareconsideredintheconsolidationgroup

concerned.

Inourexamplethesystemwouldfindnorecordstobereclassified,asthe

payables are in another cons group.

If the reclassificationsare executedaccordingto the elimination of IU

payablesandreceivables,thenthesystemonlyfindspostingrecordswith

cross-consgrouppartnerrelationships. Thereforenowinreclassification,

documentsaregeneratedwithpostinglevel 30.

Pleasenotethatreclassificationpostingscanonlybeperformedinthelast

period of theconsolidationfrequencyinterval(for example, in periods

6or12for semi-annual financial statements).

Whenreclassificationiscompleteandyouhavetochangetheinitialdata

subsequently,youhavetostartreclassificationagain. Whenyoudothis,

thesystemdeletesthedocumentsandtotalsrecordsthatweregenerated

forthereclassificationfortheselectedconsolidationunitsandtheselected

period.

Debit/Credit Sign-Triggered Reclassification of an ItemIn this case, the

financialstatementitemOtherexpenditures,whichispostedtoduringinterunit

elimination, isto bereclassifiedtoOtherrevenues.

Otherexpenditureshasanaccountgroupbalanceincredit,thefinancialstatement

itemOtherexpendituresshouldbeclearedandreclassifiedtoOtherrevenues.

ForfinancialstatementitemOtherexpenditurestonettozero,itisdefinedasa

from financial statementitemand postedtodebits.

FinancialstatementitemOtherrevenuesispostedtocredits.

IftheOtherexpendituresaccountgroupbalanceisindebit,asecondrulemustbe

defined:

• Fromfinancialstatementitem: Otherexpenditures(netstozero)

• Tofinancialstatementitem: Otherrevenues(ispostedindebit).

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Figure 111: Reclassifications

This component provides the functionality for reclassifying the values of the

financialstatement(FS)items. Itfeaturesaflexiblesetofrules,whichisableto

accommodate a wide array of applications.

You may need reclassifications to adjust the financial data reported by

consolidation units to meet corporate requirements. You may also need to

reclassify consolidated data.

Inmostcases, areclassification transfersthe value of one itemto another. For

example, the group may require reclassifying Finished Goods to Unfinished

Goods.

Reclassification has the following uses:

• Reclassificationofthevalueofoneitemoranentiresetofitems

• Reclassificationofanentirevalueorapercentageofavalue

• Itemscanbedelimitedtocertainsubitems,partnerunits,orthesetsthereof

• Reclassificationscanbepostedatthetriggeringunitorthepartnerunit

• Inheritanceofitemsandtheiradditionalaccountassignments

• Use of different postinglevels (10, 20, 30)

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AC660 Lesson: Reclassification

Figure 112: Reclassification of Sales Revenue

In this reclassification, the order of the source item and the destination item is

reversedinrelationtonormalaccountinglogic. Youneedtodothisbecausethe

debit/credit signsof the triggeringitemand thesourceitem differ. Thesystem

reversesthesignofthebalanceof thetriggeringitemtoreclassifythatbalance

from the source item to the destination item.

Figure113: Reclassification: NettingofReceivables/Payables

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Unit5: InterunitElimination&ConsolidationofInvestments AC660

Onepartofconsolidationisinterunitelimination,whicheliminatesthereceivables

and payables incurred by business transactions that take place within the

boundaries of a corporate group. As in our example, however, in the overall

consolidationgroupyoumightrecordyourbusinesspartnersaspartnerunitsthat

are not included in the consolidation group during the consolidation process.

Duringstepconsolidation,whentheconsolidatedgroupispassedontothenext

higher level, these business partners might belong to one of the higher-level

consolidationgroups. Suchbusinessrelationshipsmightrequirethatyounetyour

receivablesagainstthepayables,fromandtoeachtradingpartner,thus,statinga

net balance for each trading partner.

When customizing the reclassification, in this situation you need two

reclassification rules - one for (positive)debit balances and one for (negative)

credit balances.

Thereclassificationentryusespostinglevel20. Inthisexample,however,posting

level 30 is used in order to trigger a group-dependent reclassification of those

payables/receivablesthatdonothaveapartnerwithinthesubgroupconcerned.

You can specify in the reclassification rule that you want to compute the net

balance per partner unit. Then thereclassification isposted at the partner unit

instead of at the triggering consolidation unit. In this case, the triggering

unit is used for the partner assignment. This function is only available for

reclassificationsatlevelsequal toorgreater than20.

Figure114: ReclassificationofanItem,TriggeredbytheDebit/CreditSign

Analternativetothestandardreclassificationlogicisthedebit/creditsign-triggered

reclassification. Thereclassificationistriggeredbythesignofthebalanceofall

triggering items.

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AC660 Lesson: Reclassification

Thistypeofreclassificationreclassifiesthevalueofthesourceitemasopposedto

thestandardreclassificationlogic, whichreclassifiesthevalueofthetriggering

item(oritemset). Thesourceitemisclearedtoazerobalance.

Periodic Reclassification

Duringthisreclassification, onlythevalue200isreclassified, whichliesinthe

period(s)ofthecurrentinterval. Howmanyperiodsareactuallyinvolveddepends

on the corresponding consolidation frequency.

Emphasize the special settings that have to be activated and assigned in the

periodicity for the method:

• Periodic reclassification

• Consolidation frequency

Pleasenotethatreclassificationpostingscanonlybeperformedinthelastperiod

of the consolidation frequency interval (for example, in periods 6 or 12 for

semi-annual financial statements).

When reclassification is complete and you have to change the initial data

subsequently, you have to start reclassification again. When you do this, the

system deletes the documents and totals records that were generated for the

reclassificationfortheselectedconsolidationunitsandtheselectedperiod.

Caution: The second section refers to the graphic Reclassification of

Sales Revenues.

Hint: Systemdocumentation: Periodicreclassification:

Youcandefinethatyoudonotwanttoreclassifytheentireitemvalue,but

insteadonlythevalueofthoseperiodsthatlieinthecurrentintervalof

theconsolidationfrequency. Periodicreclassificationisespeciallyuseful

when thetriggering financial statement item differsfrom thefinancial

statement item.

For reclassificationpostingswithapostinglevel lessthan30, youalso

havetospecifytheconsolidationfrequencythatappliestotheperiodic

reclassification.

The consolidation frequency of the consolidation group applies to

reclassificationpostingswithpostinglevel 30.

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Figure 115: Periodic Reclassifications

Periodicreclassificationonlyprocessesthenewvaluesaddedintheselectedrange

ofperiods. Otherwise,theyear-to-datevalueofthecurrentperiodisused.

You use this special type of reclassification(a) if thetriggering item isnot the

sameassourceitem,or(b)apercentageofthevalueisreclassified.

To set up periodic reclassification, in Customizing of the definition of the

respectivemethodyouselectthePeriodicreclassificationindicatorandspecify

thedesiredConsolidationfrequencyforeachapplicablereclassificationrule. This

onlyincludestheitemvaluesthatbelongtothecurrent interval oftheselected

consolidation frequency.

Reclassificationsarerestrictedtothelastperiodintherangeofperiodsspecified

intheconsolidationfrequency. Forexample,onlyperiods06and12arepostedin

semi-annual consolidation runs.

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AC660 Lesson: Reclassification

Facilitated Discussion

Discussion Questions

Usethefollowingquestionstoengagetheparticipantsinthediscussion.Feelfree

to use your own additional questions.

Discuss reclassification.

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Lesson Summary

You should now be able to:

• Describe the benefits of reclassification

• Differentiatebetween types of reclassification

• Explain periodic reclassification

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AC660 Unit Summary

Unit Summary

You should now be able to:

• Definethetasksandmethodsforinterunitelimination

• Explain the interunit elimination method

• Examinethecausesof eliminationdifferences

• Listthebenefitsofandthestepsfordocumentreconciliation

• Compare simultaneous consolidation, step consolidation, and stepwise

simultaneous consolidation

• DescribeConsolidationofInvestmentsutilization

• Use the consolidation of investmentsmethod

• Explain method assignment for simultaneous consolidation and step

consolidation

• Describetheautomatic consolidationactivities

• Describetwowaystoconveytheconsolidationofinvestmentsactivitiesto

the system

• Explain the customizing settings to enable automatic consolidation of

investments postings

• Discussthepostingprocessforappropriationofretainedearnings

• Describe how dividends and bonus payments are distributed in the

customizingofselecteditemsforconsolidationofinvestments

• Explainactivityinterpretationinaconsolidationgroup

• Describe the consolidation logic in SAP

• Explain the equity method

• Describesubsequentconsolidationinequitymethod

• Compare between HGB and US GAAP/IAS for first and subsequent

consolidation

• Describe the benefits of reclassification

• Differentiatebetween types of reclassification

• Explain periodic reclassification

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UnitSummary AC660

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AC660 Test Your Knowledge

Test Your Knowledge

317

1. Which of the following tasks are covered by interunit elimination in the

consolidation system?

Choosethecorrectanswer(s).

□ A Eliminationofinterunitpayablesandreceivables

□ B Eliminationofinterunitrevenuesandexpenses

□ C Elimination of investment income

□ D All of the above

2. How can you restrict the item values to be eliminated in the interunit

elimination (IU) method?

3. What are splitting differences?

4. The document matching program cannot be called from balance

reconciliationaftertheeliminationofinterunitpayablesandreceivables.

Determinewhetherthisstatementistrueorfalse.

□ True

□ False

5. When network-like investment structures are involved, disclosures and

computations in step consolidation are simpler than in simultaneous

consolidation.

Determinewhetherthisstatementistrueorfalse.

□ True

□ False

6. SAPdoesnotsupportstepwisesimultaneousconsolidation.

Determinewhetherthisstatementistrueorfalse.

□ True

□ False

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7. Listthefields,thepropertiesofwhichhavetobedefinedifconsolidationof

investments utilization is set to global.

8. Youcandefinemorethanoneconsolidationofinvestmentsmethodforeach

valid accounting technique.

Determinewhetherthisstatementistrueorfalse.

□ True

□ False

9. Inconsolidationgroupsthatconsistofmultiplelevels,themethodsassigned

atlowerlevelscannotbeusedasdefaultsforupperlevels.

Determinewhetherthisstatementistrueorfalse.

□ True

□ False

10. Whenyouenterreported andequitydata,thesystem

automaticallyassignsasequentialactivitynumberthatuniquelyidentifies

the activity.

Fillintheblankstocompletethesentence.

11. Whatarethetwowaystoconveyconsolidationofinvestmentactivitiesto

the system?

12. ListtwoCustomizingsettingsforautomaticconsolidationofinvestments

postings.

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13. When do the postings for the activities-subsequent consolidation and

divestiture take place?

14. Whenapartialortotaldivestitureoccurs,allrevenues/expensesminusany

distributionofdividendsand aresummed

up and proportionally/fully invested.

Fillintheblankstocompletethesentence.

15. Different consolidation of investments methods cannot be applied, even

if the same activities are interpreted for each subgroup of the overall

consolidation group.

Determinewhetherthisstatementistrueorfalse.

□ True

□ False

16. Whatarethecharacteristicsofconsolidationofinvestments?

17. For the equity method, you supply the subsidiary’s and the

parent’s investment.

Fillintheblankstocompletethesentence.

18. Listthestepstotreatsubsequentconsolidationintheequitymethod.

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19. The difference between German HGB and US GAAP/IAS in first

consolidation in a multiple-level group with minority interests does not

appear during subsequent consolidation.

Determinewhetherthisstatementistrueorfalse.

□ True

□ False

20. List any three uses of reclassification.

21. Thedebit/creditsigntriggeredreclassificationreclassifiesthevalueofthe

triggering item.

Determinewhetherthisstatementistrueorfalse.

□ True

□ False

22. Whenwouldyou useperiodic reclassification?

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AC660 Test Your Knowledge

Answers

321

1. Which of the following tasks are covered by interunit elimination in the

consolidation system?

Answer: D

Interunit elimination covers the elimination of interunit payables and

receivables, the elimination of interunit revenues and expenses, and the

eliminationofinvestmentincomeinthedatamonitor.

2. How can you restrict the item values to be eliminated in the interunit

elimination (IU) method?

Answer: By specifying the characteristic value sub-assignments,

consolidationorpartnerunitsandtheirattributes, anddocumenttype,you

canrestricttheitemvaluestobeeliminatedintheIUmethod. Theselection

isrestrictedtothoseunitsthathavetheseattributes, ortothedatarecords

thathavebeenpostedwiththesedocumenttypes.

3. What are splitting differences?

Answer: Asplittingofdifferencesisunderstoodasananalysisofthesystem

containingthecausesofeliminationdifferences. Thesystemcananalyze

elimination differences and split them into two categories, depending on

their cause.

4. The document matching program cannot be called from balance

reconciliationaftertheeliminationofinterunitpayablesandreceivables.

Answer: False

The document matching program can be called directly from balance

reconciliationaftertheeliminationofinterunitpayablesandreceivables.

5. When network-like investment structures are involved, disclosures and

computations in step consolidation are simpler than in simultaneous

consolidation.

Answer: False

When network-like investment structures are involved, disclosures and

computations in step consolidation are much more complex than in

simultaneous consolidation.

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6. SAPdoesnotsupportstepwisesimultaneousconsolidation.

Answer: False

SAPsupportsstepwisesimultaneousconsolidation.

7. Listthefields,thepropertiesofwhichhavetobedefinedifconsolidationof

investments utilization is set to global.

Answer: If consolidation of investments utilization is set to global, the

propertiesofgoodwillamortizationandlife,newgoodwill,thresholdvalue,

equityaging,andnegativestockholdersvaluearedefined.

8. Youcandefinemorethanoneconsolidationofinvestmentsmethodforeach

valid accounting technique.

Answer: False

Youcandefineonlyoneconsolidationofinvestmentsmethodforeachvalid

accounting technique.

9. Inconsolidationgroupsthatconsistofmultiplelevels,themethodsassigned

atlowerlevelscannotbeusedasdefaultsforupperlevels.

Answer: False

Inconsolidationgroupsthatconsistofmultiplelevels,themethodsassigned

atlowerlevelsareusedasdefaultsfortheupperlevels(upwardinheritance).

10. When you enter reported investment and equity data, the system

automaticallyassignsasequentialactivitynumberthatuniquelyidentifies

the activity.

Answer: investment

11. Whatarethetwowaystoconveyconsolidationofinvestmentactivitiesto

the system?

Answer: Thetwowaystoconveyconsolidationofinvestmentactivitiesto

the system are:

• Fully automatic derivation of the equity from the balance sheet of

the respective units

• Manual entry of activities

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