Consolidation Practical

Guide
N1
June, 2011

How to handle the acquisition of a subsidiary

with SAPBusinessObjectsTM Planning and Consolidation 10.0, Version for SAP
Netweaver Starter Kit for IFRS?

What are the regulation requirements?

A business combination mainly refers to IFRS3 and is defined as a transaction or
another event in which an acquirer obtains control of an acquiree. Each business
combination should be accounted for using the acquisition method.
There are several steps in applying the acquisition method:

Summary:

What are the regulation

requirements?

Presentation of the Business

Case

How to apply acquisition

method with IFRS Starter Kit?

How does the acquisition

affect financial statements?

To know more

1. Measure acquirees assets and liabilities

The acquirer should recognize, separately from goodwill, the
identifiable assets acquired and the liabilities assumed and
measure them at their acquisition-date fair values.
These acquisition-date fair values become the initial carrying
values of the acquired assets and liabilities in the consolidated
financial statements
2. Measure non controlling interests
at fair value or
at their proportionate share of the acquirees identifiable net
assets.
3. Recognize and measure goodwill or a gain from a bargain purchase
Revised IFRS 3 (2008) has introduced the full goodwill method as an
alternative to the partial goodwill method, when an acquirer purchases
less than 100% of shares of the acquiree.
In the partial method, goodwill is the difference between the
consideration paid and the purchasers share of identifiable net assets
acquired.
In the full goodwill method, non-controlling interests (formerly referred
to as minority interests) are measured at fair value. The difference
between their proportionate share of identifiable net assets and their fair
value is recognized as goodwill.
Revised IFRS 3 gives a choice on a transaction-by-transaction basis. For
each business combination, an entity may either measure non-controlling
interests at fair value, which leads to 100% of goodwill being recognized,
or at their proportionate interest in identifiable net assets (partial
goodwill).

What are SAP BusinessObjects

Starter Kits?

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IFRS

Preconfigured contents on top of

TM
SAP BusinessObjects Planning and
Consolidation and Financial
Consolidation

with all reports, controls and rules for

performing, validating and publishing
a statutory consolidation in
accordance with IFRS standards

Based on dynamic configuration easy

to customize to specific
requirements

Delivered on SAP Service Market

Place

Provided with documentations

posted on SAP Help

How to handle the acquisition of a subsidiary

with SAP BusinessObjects IFRS Starter Kits
Consolidation Practical Guide N1 June, 2011

Presentation of the Business Case

Y 2013

Y 2014

Parent P1

Parent P1

This business case is included in

the set of data provided with the
IFRS starter kit. It can be retrieved
using the following settings:
Category: ACTUAL
Time: 2014.DEC

60%

Consolidation Currency: USD

Consoscope: CASE1

Subsidiary PS1

Entity: P1, PS1

Parent P1 pays USD 150 000 for 60% of subsidiary PS1.

Net assets of PS1 are as follows:

Inventories
Trade receivable
Cash
Less : Trade payable
Net assets

Carrying
amount
20 000
40 000
10 000
(30 000)
40 000

Fair
value
30 000
40 000
10 000
(30 000)
50 000

Through valuation techniques, fair value of non-controlling interests is

determined to be USD 100 000. Goodwill is calculated as follows:
Consideration paid
150 000
Fair value of non-controlling interests
100 000
Less : Fair value of PS1net assets
(50 000)
Goodwill
200 000

Parents interest in goodwill is calculated as follows:

Consideration paid
Less : Parents share of PS1net assets (60%)
Goodwill attributable to P1

150,000
(30 000)
120 000

Goodwill attributable to non-controlling interests is USD 80 000

(= 200 000 120 000).

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How to handle the acquisition of a subsidiary

with SAP BusinessObjects IFRS Starter Kits
Consolidation Practical Guide N1 June, 2011

How to apply acquisition method with IFRS starter kit?

Reminder
The amounts stored in the database are identified thanks to a set of elements called dimensions.
The main dimensions are listed below:
The account dimension indicates which item of the balance sheet or P&L is impacted.
The flow dimension is used to identify and analyze the changes between the opening (flow F00)
and closing (flow F99) balances.
The audit ID dimension identifies the origin of the data for input data, local adjustments, manual
and automatic journal entries.

Consolidation scope
When you declare in the Ownership manager of BPC NW 10.0 the acquired entity as being consolidated whereas it
was not included in the previous years scope, it is automatically identified as an incoming entity.

Y2013

Y2014

Specific group of tasks to be performed for incoming entities

A specific group of tasks has to be performed for all incoming entities before running the consolidation of the group.
This procedure is compulsory in order to load and convert properly the net equity of incoming entities. It is described
in the BPC NW 10.0 Starter kit for IFRS - Operating guide.

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How to handle the acquisition of a subsidiary

with SAP BusinessObjects IFRS Starter Kits
Consolidation Practical Guide N1 June, 2011

Automatic journal entries

The opening balance sheet of acquiree entered on flow F00 is converted in consolidation currency and
transferred into flow F01, which is the flow dedicated to changes in the balance sheet due to incoming
entities. This transfer is done using audit ID SCO_INC.
In our example, entity PS1s Assets before any other consolidation entry:
F00 - Opening

A2120 - Merchandise

A2210 - Trade receivables, Gross

A2610 - Cash on hand

INPUT - Input data

SCO_INC - New companies
Total Merchandise
INPUT - Input data
SCO_INC - New companies
Total Trade receivables, Gross
INPUT - Input data
SCO_INC - New companies
Total Cash on hand

20 000
(20 000)
0
40 000
(40 000)
0
10 000
(10 000)
0

F01 Incoming
units

F15 - Net
variation

20 000
20 000
40 000
40 000
10 000
10 000

F99 - Closing

20 000

0
0

20 000
40 000

0
0

40 000
10 000

10 000

Figure 1- BS by flow and audit ID

Intercompany transactions declared on flow F00 at acquiree and partner are eliminated on flow F01 using
audit ID ELIM10

Internal dividends paid by acquiree are eliminated on flow F01 using audit ID DIV10

Investments at parents company are eliminated with counterpart in held companys equity using audit ID
INV10 on flow F01

The NCI at the acquisition date is calculated on the basis of the financial interest rate at closing using audit
IDs NCIxxx (depending on the original audit IDs)

The amount of goodwill related to the acquirers share and, if non-controlling interests are measured at fair
value, the amount of goodwill related to their share are declared on dedicated technical accounts. This
manual journal entry triggers automatic journal entries in the consolidated statements. This has an effect on
balance sheet account A1310-Goodwill and the impact on the consolidated equity is split between Group
and Non-controlling interests, based on the groups financial interest in the owner company.

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How to handle the acquisition of a subsidiary

with SAP BusinessObjects IFRS Starter Kits
Consolidation Practical Guide N1 June, 2011

Manual journal entries

A first manual journal entry (MJE) has been posted to recognize fair value adjustments on net assets acquired using
a dedicated audit ID FVA11 Fair value for incoming entities (central) - Man.

a The entry is posted at the subsidiary, in

local currency (i.e in the reporting
currency of PS1),
b Using the audit ID FVA11,
c the flow F01 (incoming unit),

c
d Posted at 100%. This amount will be
allocated to NCI automatically using
audit ID NCI_FVA10 for 40%.

Extract of the balance by flow of entity PS1 after having posted FVA MJE
F00 - Opening

A2120 - Merchandise

FVA11 - Fair value for incoming entities (central) - Man.

INPUT - Input data
SCO_INC - New companies
Total Merchandise
E1610 - Retained earnings
FVA11 - Fair value for incoming entities (central) - Man.
NCI_FVA10 - FV for incoming entities (central) - NCI

F01 - Incoming
units
10 000

20 000
(20 000)
0

E2010 - NCI - Reserves and

NCI_FVA10
retained earnings
- FV for incoming entities (central) - NCI

20 000
30 000
10 000
(4 000)

F99 - Closing

10 000
20 000
30 000
10 000
(4 000)

4 000

4 000

Figure 2- BS by flow and audit ID

The second manual entry allows declaring on technical accounts the goodwill attributable to the group and the
goodwill attributable to non-controlling interests.

a The entry is posted at the subsidiary, in local

currency (i.e in the reporting currency of PS1)

b using the audit ID GW01 Disclosure of goodwill

and bargain purchase
c on account XA1310 for the goodwill attributable to
the group, with an INTERCO detail by owner
company. This amount will trigger an automatic
journal entry on audit ID GW10.

c
d

d on account XA1310NCI for the goodwill attributable

to NCI (full goodwill method) with an INTERCO detail
equal to I_NONE. This amount will trigger an
automatic journal entry on audit ID FGW10.

Extract of the balance sheet by flow for entity PS1 after having posted goodwill MJE

A1310 - Goodwill

E1610 - Retained earnings

E2010 - NCI - Reserves and retained earnings

GW10 - Booking of goodwill and bargain purchase - Auto.

FGW10 - Booking of NCI GW and bargain purchase - Auto.
Total Goodwill
GW10 - Booking of goodwill and bargain purchase - Auto.
FGW10 - Booking of NCI GW and bargain purchase - Auto.

F01 - Incoming
units

c
c

120 000
80 000
200 000
120 000
80 000

F99 - Closing

d
d

120 000
80 000
200 000
120 000
80 000

Figure 3- BS by flow and audit ID

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How to handle the acquisition of a subsidiary

with SAP BusinessObjects IFRS Starter Kits
Consolidation Practical Guide N1 June, 2011

Retrieval of consolidated data

After running the consolidation, the consolidated balance sheet is as follows:

A1310 - Goodwill
A1810 - Investments in subsidiaries, JV and associates
A181HC - Elimination of investments in subsidiaries - Held company
A181OC - Elimination of investments in subsidiaries - Owner company
A2120 - Merchandise
A2210 - Trade receivables, Gross
A2610 - Cash on hand
A999T - Total assets
Separation row
Separation row
E1110 - Issued capital
E1610 - Retained earnings
E199T - Equity attributable to owners of parent
E2010 - NCI - Reserves and retained earnings
L2310 - Trade payables
L9E9T - Total equity and liabilities

F00 - Opening

F01 - Incoming
units

F15 - Net
variation

F20 - Increase /
Purchase

200 000

0
0

(150 000)

0
0
150 000
150 000

30 000
40 000
10 000
130 000

0
0
(150 000)
(150 000)

0
0
0
100 000
30 000
130 000

0
0
0

150 000

150 000
0
150 000
0
150 000

Figure 4- BS by flow

c
d

0
0

Flow F00 shows the opening financial position of P1.

Flow F01 shows the acquired financial position of PS1.

The acquisition of a subsidiary doesnt have any impact on the group share (Controlling
Interests) of the consolidated equity on flow F01.

It impacts Non Controlling Interests (E2010 NCI Retained Earnings) on flow F01.

Flow F01 is balanced.

Flows F15 and F20 show the consideration paid by P1 and the cash outflow. Note that
specific suspense accounts (A181HC and A181OC) are used in order to post the
investment elimination (for more explanations, refer to the BPC NW 10.0 Starter kit for
IFRS Operating guide).

150 000

F99 - Closing

200 000
0
(150 000)
150 000
30 000
40 000
10 000
280 000

150 000
0
150 000
100 000
30 000
280 000

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How to handle the acquisition of a subsidiary

with SAP BusinessObjects IFRS Starter Kits
Consolidation Practical Guide N1 June, 2011

The equity movements are explained below:

a
b
c
d
a
b
e
f
g
h
c
e
f
h
c
Figure 5- BS by flow and audit ID

This screenshot describes all the entries posted in the equity (manual and automated):
a

Issued capital of P1 and PS1, retained earnings of PS1 entered on INPUT data audit ID

Automatic transfer of PS1 opening balances from flow F00 to flow F01 on dedicated
SCO_INC audit ID

Allocation of the subsidiary PS1 issued capital to the group share (10000*60%=6000) and
to NCI (10000*40%=4000) on CONS10 audit ID

Fair value posted by manual journal entry on FVA11 audit ID

Allocation of the subsidiary PS1 retained earnings to the NCI (30000*40%=12000) on

NCI_INPUT audit ID

Allocation of the subsidiary PS1 manual journal entry on fair value to the NCI
(10000*40%=4000) on NCI_FVA10 audit ID

Investment elimination coming from P1 input data posted on INV10 audit ID

Goodwill booking on group share (GW10) and NCI (FGW10) according to the manual
journal entry

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How to handle the acquisition of a subsidiary

with SAP BusinessObjects IFRS Starter Kits
Consolidation Practical Guide N1 June, 2011

How does the acquisition affect financial statements?

Statement of financial position

a Goodwill accounted for using the full goodwill method

b Fair value of non-controlling interests

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How to handle the acquisition of a subsidiary

with SAP BusinessObjects IFRS Starter Kits
Consolidation Practical Guide N1 June, 2011

Statement of cash flows

(Extract)

2014.DEC

Profit (loss)
Net cash flow s from (used in) operating activities
CF from losing control of subsidiaries or JV
CF used in obtaining control of subsidiaries or JV
Other inflow s (outflow s) of cash
Net cash flow s from (used in) investing activities
Net cash flow s from (used in) financing activities
Effect of exch. rate changes on cash & cash equiv.
Net increase (decrease) in cash & cash equivalents

0
0
0
-140 000
0
-140 000
0
0
-140 000

Cash and cash equivalents at beginning of period

Cash and cash equivalents at end of period
Difference Closing - Opening

150 000
10 000
-140 000

The statement of cash flows is not

affected by the way goodwill is measured.
The impact of a business combination is
the net of the consideration paid and the
cash acquired (that is cash and cash
equivalents in the subsdiary acquired).
a Cash acquired (USD 10 000) Consideration paid (USD 150 000)

Statement of changes in equity

(Extract)
Issued
capital

Balance at opening
Changes in accounting policies
Balance at opening as restated - 2014.DEC
Com prehensive incom e
Issue of shares
Dividends paid
Transfers
Issue of convertible notes
Share-based payments
Purchase and disposal of treasury shares
Transactions w ith non-controlling interests
Other movements
Balance at closing - 2014.DEC

150 000
0
150 000
0
0
0
0
0
0
0
0
0
150 000

Share
prem ium

Treasury
shares

0
0
0
0
0
0
0
0
0
0
0
0
0

0
0
0
0
0
0
0
0
0
0
0
0
0

Other
reserves

Equity
attributable to
ow ners of
parent

Retained
earnings

0
0
0
0
0
0
0
0
0
0
0
0
0

0
0
0
0
0
0
0
0
0
0
0
0
0

150 000
0
150 000
0
0
0
0
0
0
0
0
0
150 000

Noncontrolling
interests

0
0
0
0
0
0
0
0
0
0
0
100 000
100 000

Total
equity

150 000
0
150 000
0
0
0
0
0
0
0
0
100 000
250 000

a The only movement that occurs during the year refers to the NCI incoming (PS1).

To know more
You will find further indications on how to deal with incoming entities in the BPC NW 10.0 Starter kit for IFRS Operating guide.

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