Pc100nw Ifrs Scope Case1

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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:

1.

Measure acquiree’s 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 carryingvalues 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 acquiree’s 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 purchasesless than 100% of shares of the acquiree.

In the “partial method”, goodwill is the difference between the

consideration paid and the purchaser’s 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).

Consolidation Practical

Guide

N°1

June, 2011

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

What are SAP® BusinessObjectsTM

IFRS

Starter Kits?

Preconfigured contents on top of

SAP® BusinessObjectsTM

Planning and

Consolidation and FinancialConsolidation

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a statutory consolidation in

accordance with IFRS standards

Based on dynamic configuration easy

to customize to specific

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Delivered on SAP Service Market

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Provided with documentations

posted on SAP Help

How to handle the acquisition of a subsidiary

with SAP®BusinessObjectsTM Planning and Consolidation 10.0, Version for SAP

Netweaver Starter Kit for IFRS?




with SAP® BusinessObjects™ IFRS Starter Kits

Consolidation Practical Guide N°1 – June, 2011

- 2 -

Presentation of the Business Case

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

Net assets of PS1 are as follows:

Carrying

amount

Fair

value

Inventories 20 000 30 000

Trade receivable 40 000 40 000Cash 10 000 10 000

Less : Trade payable (30 000) (30 000)

Net assets 40 000 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 PS1’net assets (50 000)

Goodwill 200 000

Parent’s interest in goodwill is calculated as follows:

Consideration paid 150,000

Less : Parent’s share of PS1’net assets (60%) (30 000)

Goodwill attributable to P1 120 000

Goodwill attributable to non-controlling interests is USD 80 000

(= 200 000 – 120 000).

Y 2013 Y 2014

Parent P1 Parent P1

Subsidiary PS1

60%

This business case is included inthe set of data provided with the

IFRS starter kit. It can be retrieved

using the following settings:

Category: ACTUAL

Time: 2014.DEC

Consolidation Currency: USD

Consoscope: CASE1

Entity: P1, PS1






- 3 -

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.

How to apply acquisition method with IFRS starter kit?

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 year’s scope, it is automatically identified as an incoming entity.

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.

Y2013

Y2014

https://websmp203.sap-ag.de/~form/sapnet?_SHORTKEY=01100035870000735401&_SCENARIO=01100035870000000202&









- 4 -

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 PS1’s Assets before any other consolidation entry :

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 parent’s company are eliminated with counterpart in held company’s 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 acquirer’s 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 group’s financial interest in the owner company.

F00 - Opening

F01 -

Incoming

units

F15 - Net

variationF99 - Closing

A2120 - Merchandise INPUT - Input data 20 000 0 20 000

SCO_INC - New companies (20 000) 20 000

Total Merchandise 0 20 000 0 20 000

A2210 - Trade receivables, Gross INPUT - Input data 40 000 0 40 000


Total Trade receivables, Gross 0 40 000 0 40 000

A2610 - Cash on hand INPUT - Input data 10 000 0 10 000


Total Cash on hand 0 10 000 0 10 000






- 5 -

F01 - Incoming

unitsF99 - Closing

A1310 - Goodwill GW10 - Booking of goodwill and bargain purchase - Auto. 120 000 120 000

FGW10 - Booking of NCI GW and bargain purchase - Auto. 80 000 80 000

Total Goodwill 200 000 200 000

E1610 - Retained earnings GW10 - Booking of goodwill and bargain purchase - Auto. 120 000 120 000

E2010 - NCI - Reserves and retained earnings FGW10 - Booking of NCI GW and bargain purchase - Auto. 80 000 80 000

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.

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


The second manual entry allows declaring on technical accounts the goodwill attributable to the group and the

goodwill attributable to non-controlling interests.

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


F00 - Opening F01 - Incomingunits

F99 - Closing

A2120 - Merchandise FVA11 - Fair value for incoming entities (central) - Man. 10 000 10 000

INPUT - Input data 20 000 20 000


Total Merchandise 0 30 000 30 000

E1610 - Retained earnin FVA11 - Fair value for incoming entities (central) - Man. 10 000 10 000

NCI_FVA10 - FV for incoming entities (central) - NCI (4 000) (4 000)

E2010 - NCI - Reserves NCI_FVA10 - FV for incoming entities (central) - NCI 4 000 4 000

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),

d Posted at 100%. This amount will be

allocated to NCI automatically using

audit ID NCI_FVA10 for 40%.

a b

c

d

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.

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.

a b

cd

c

c

d

d

d

d






- 6 -

Retrieval of consolidated data

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

Figure 4- BS by flow

F00 - Opening

F01 - Incoming

units

F15 - Net

variation

F20 - Increase /

Purchase F99 - Closing

A1310 - Goodwill 200 000 200 000

A1810 - Investments in subsidiaries, JV and associates 0 0

A181HC - Elimination of investments in subsidiaries - Held company 0 (150 000) (150 000)

A181OC - Elimination of investments in subsidiaries - Owner company 150 000 150 000

A2120 - Merchandise 0 30 000 0 30 000

A2210 - Trade receivables, Gross 0 40 000 0 40 000

A2610 - Cash on hand 150 000 10 000 (150 000) 10 000

A999T - Total assets 150 000 130 000 (150 000) 150 000 280 000

Separation row

Separation row

E1110 - Issued capital 150 000 0 0 150 000

E1610 - Retained earnings 0 0 0 0

E199T - Equity attributable to owners of parent 150 000 0 0 150 000

E2010 - NCI - Reserves and retained earnings 100 000 100 000

L2310 - Trade payables 0 30 000 0 30 000

L9E9T - Total equity and liabilities 150 000 130 000 0 280 000

d

c

e

e

a Flow F00 shows the opening financial position of P1.

b Flow F01 shows the acquired financial position of PS1.

c The acquisition of a subsidiary doesn’t have any impact on the group share (Controlling

Interests) of the consolidated equity on flow F01.

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

e Flow F01 is balanced.

f 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).

a b f






- 7 -

The equity movements are explained below:


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

b Automatic transfer of PS1 opening balances from flow F00 to flow F01 on dedicated

SCO_INC audit ID

c Allocation of the subsidiary PS1 issued capital to the group share (10000*60%=6000) and

to NCI (10000*40%=4000) on CONS10 audit ID

d Fair value posted by manual journal entry on FVA11 audit ID

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

NCI_INPUT audit ID

f Allocation of the subsidiary PS1 manual journal entry on fair value to the NCI

(10000*40%=4000) on NCI_FVA10 audit ID

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

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

ab

f

g

h

h

c

c

c

d

f

be

e

a






- 8 -

How does the acquisition affect financial statements?

Statement of financial position

a

b

a Goodwill accounted for using the full goodwill method

b Fair value of non-controlling interests






9

Statement of cash flows(Extract)

Statement of changes in equity(Extract)

To know moreYou will find further indications on how to deal with incoming entities in the BPC NW 10.0 Starter kit for IFRS -

Operating guide.

2014.DEC

Profit (loss) 0

Net cash flows from (used in) operating activities 0

CF from losing control of subsidiaries or JV 0

CF used in obtaining control of subsidiaries or JV -140 000

Other inflows (outflows) of cash 0

Net cash flows from (used in) investing activities -140 000

Net cash flows from (used in) financing activities 0

Effect of exch. rate changes on cash & cash equiv. 0

Net increase (decrease) in cash & cash equivalents -140 000

Cash and cash equivalents at beginning of period 150 000

Cash and cash equivalents at end of period 10 000

Difference Closing - Opening -140 000

Issuedcapital

Sharepremium

Treasuryshares

Otherreserves

Retainedearnings

Equity

attributable t oowners of

parent

Non-controlling

interests

Totalequity

Balance at opening 150 000 0 0 0 0 150 000 0 150 000

Changes in accounting policies 0 0 0 0 0 0 0 0

Balance at opening as restated - 2014.DEC 150 000 0 0 0 0 150 000 0 150 000

Comprehensive income 0 0 0 0 0 0 0 0

Issue of shares 0 0 0 0 0 0 0 0

Dividends paid 0 0 0 0 0 0 0 0

Transfers 0 0 0 0 0 0 0 0

Issue of convertible notes 0 0 0 0 0 0 0 0

Share-based payments 0 0 0 0 0 0 0 0

Purchase and disposal of treasury shares 0 0 0 0 0 0 0 0

Transactions w ith non-controlling interests 0 0 0 0 0 0 0 0

Other movements 0 0 0 0 0 0 100 000 100 000

Balance at closing - 2014.DEC 150 000 0 0 0 0 150 000 100 000 250 000

a

The statement of cash flows is notaffected 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)

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

a













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Pc100nw Ifrs Scope Case1