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4/20/2019

Business Consolidation (SEM-BCS)


Generated on: 2019-04-20

SAP ERP | 6.16.13

PUBLIC

Warning

This document has been generated from the SAP Help Portal and is an incomplete version of the official SAP product
documentation. The information included in custom documentation may not re ect the arrangement of topics in the SAP Help
Portal, and may be missing important aspects and/or correlations to other topics. For this reason, it is not for productive use.

For more information, please visit the SAP Help Portal.

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Elimination of Interunit Pro t/Loss in


Transferred Inventory
Purpose
Current assets, typically inventory items, are sold within consolidation groups (for example, corporate groups). These
transactions lead to interunit pro ts or losses.

You can use this component to automatically eliminate interunit (IU) pro ts and losses. This elimination can be a statutory
accounting requirement or a policy of management accounting for the group, either or both of which require that the
consolidated statements portray the group as if it were a single entity.

The following prerequisites must be met to use this component:

Interunit pro t or loss requiring elimination has been recorded in your group as a result of the sale of inventory.

The consolidation units involved in the sale are included in consolidation.

The consolidation group still owns all or part of the asset that was sold within the group as per the date of consolidation
– that is, it has not been fully sold to a third party.

Implementation Considerations
Implement this component if you want to eliminate IU pro t/loss resulting from inventory transfers by means of automatic
posting.

Features
Calculation Base for Interunit Pro t/Loss

The elimination of interunit pro t/loss in inventory is based on data about:

The inventory-managing consolidation unit and

The supplying consolidation unit

A trading relationship exists between such a pair of consolidation units. The system uses productgroupswhen reconciling the
inventory data with the supplier data of those units.

Calculation and Posting of Interunit Pro t/Loss

The interunit pro t/loss is calculated as follows:

Calculated Location of Data

Book value of the asset Totals database or additional nancial data

- Group cost of goods manufactured Additional nancial data

= Interunit pro t or loss

Valuation allowances may already be accounted for in the interunit pro t/loss.

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The system eliminates the interunit pro t/loss as follows:

If the difference re ects an IU pro t – that is, the difference is positive – then the system makes an adjustment to match
the lower value, in this case, the group COGM. The group records the lowest value.

If the difference re ects an IU loss – that is, the difference is negative – then the system makes an adjustment to match
the higher value – in this case, the group COGM.

There is no requirement to automatically post interunit losses.

The following is achieved by the automatic postings:

The asset is adjusted by the amount of the interunit pro t/loss.

The offsetting entry can be posted either to an income statement item (standard procedure) or to a balance sheet item.

At the same time, the system adjusts retained earnings and/or annual net income.

The system posts deferred taxes to the pro t adjustment item (optional).

You can transfer the distribution costs to an item you specify – for example, cost of goods manufactured.

Furthermore, you can record currency translation differences that are incurred in the elimination of interunit pro t/loss.

Two-Sided Supply Relationships and Supply Chains

The component not only portrays supply relationships between two units within a consolidation group. It also portrays supply
chains that span multiple pair relationships.

Different Accounting Techniques

The elimination of interunit pro t/loss in transferred inventory treats consolidation units according to their
accountingtechnique . The following accounting techniques are supported:

Purchasemethod

Equitymethod

Equity method for nonconsolidated units

(These are consolidation units, whose upper units [investors] have a controlling interest, but are nevertheless merely
included using the equity method in consolidation of investments.)

Posting Level

If you only want to account for two-sided relationships and only want to consolidate units using the purchase method, then you
use a document type that posts to posting level 20 (two-sided elimination entries).

However, if you want to account for supply chains or you want to consolidate units using the equity method, then you need to
use a document type that posts to posting level 30.

Example: Elimination Logic for Two-Sided


Eliminations
The following assumptions are given in this standard case example:

Consolidation units A and B are trading partners and are consolidated using the purchase method.
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Consolidation unit A sells goods to B, which incurs an interunit pro t of 100 monetary units.

No currency translation differences are posted and no transfer of distribution costs takes place.

No transactions from prior periods are taken into account.

The tax rate for deferred taxes is 50%.

The following standardized data was reported by A and B in group currency:

Assets Liabilities & Stockholders’


Equity

Fixed Assets 500 Stockholders’ Equity 700-

Current Assets 500 Liabilities 100-

Retained Earnings 200-

1000 1000-

Sales Revenue 1200

Expenses 1000-

Annual Net Income 200

Unappropriated Retained Earnings (Prior Year) 100

Appropriation of Retained Earnings 100-

Retained Earnings 200

Assets Liabilities & Stockholders’


Equity

Fixed Assets 1200 Stockholders’ Equity 1000-

Current Assets 300 Liabilities 400-

Retained Earnings 100-

1500 1500-

Sales Revenue 2000

Expenses 1500-

Annual Net Income 500

Unappropriated Retained Earnings (Prior Year) 200

Appropriation of Retained Earnings 600-

Retained Earnings 100

The following entries are posted to eliminate the IU pro t of 100 monetary units, with a tax rate of 50%:

Dr. Cr.

Expenses Current Assets 100 100

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Dr. Cr.

Expenses Current Assets 100 100

CapitalizedDeferred Tax Deferred Tax Expense 50 50

Retained Earnings (B/S) Retained Earnings (I/S) 50 50

The deferred income taxes that arise are cleared in subsequent periods.

After the elimination, the consolidated nancial statements show the following data:

Assets Liabilities & Stockholders’


Equity

Fixed Assets 1700 Stockholders’ Equity 1700-

Current Assets (500+300)-100 Liabilities 500-

= 700

Deferred Income Tax 50 Retained Earnings -200+(-100)+50

= 250-

AccruedTax Provision ----

2450 2450-

Sales Revenue = 1200+2000 = 3200

Expenses = (-1000)+(-1500)+(-50) = 2550-

Annual Net Income = 200+500-50 = 650

Unappropriated Retained Earnings (Prior = 100+200 = 300


Year)

Appropriation of Retained Earnings = (-100)+(-600) = 700-

Retained Earnings = (-200)+(-100)-50 = 250

Supply Chains
Use
You can use this function to portray in the system multiple sales of inventory assets between the consolidation units of a
consolidation group before such assets are sold to third parties.

Prerequisites
In the data basis , you have (or the system has) created the InfoProvider for the supplier share.

You have collected the additional nancial data for the elimination of interunit pro t/loss in transferred inventory, including the
supplier share.

Features
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The system supports supply chains of more than two consolidation units. The system calculates and eliminates interunit pro ts
(or losses) along the entire supply chain within one consolidation group. The calculation of interunit pro t is dependent on the
consolidation group, and not only on one pair of consolidation units. Therefore, the system posts the entries with posting level
30 (consolidation group-dependent entries).

The system stores the delivery relationships within the supply chain in the Supplier Share data stream. If the respective supplier
share percentages in a consolidation group do not add up to 100%, then the missing share is either self-constructed by the
buyer or originates from a third party.

Constraints

The calculation of interunit pro t does not take valuation methods such as LIFO and FIFO into account.

The system does not support delivery cycles in which a buyer sells back the asset to one of the sellers in the chain. Also
not supported are supply chains modeled as grids; only hierarchical chains are supported.

Valuation allowances can be posted only for the inventory-managing consolidation unit, not elsewhere in the supply
chain.

Interunit pro t or loss can be calculated either using percentage rates (for the pro t margin and the cost of goods
manufactured) or using absolute currency amounts. This setting may not change throughout the course of the supply
chain.

Activities
Create a document type with posting level 30.

Proceed as already described in Customizing for Elimination of IU P/L in Transferred Inventory .

Example
See the following examples of supply chains:

Example 1: Elimination Logic for Supply Chains

Example 2: Elimination Logic for Supply Chains

Example: Equity-Method Units in Supply Chains

Example 1: Elimination Logic for Supply


Chains
Initial Situation
Three companies belong to consolidation group CG. First, company C3 sells inventory assets to company C2. Then, C2 sells the
inventory to C1.

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All units (in this case, companies) are consolidated using the purchase method.

The document type is set up for posting deferred taxes of 40%.

Additional Financial Data


This data is located in the additional nancial data as follows:

Cons Unit Partner Unit Prod. Group Key Figures

Inventory data C1 - PG1 Book value = USD 1,000

Supplier share C1 C2 PG1 Supplier share = 100%

C2 C3 PG1 Supplier share = 100%

Supplier data C2 - PG1 Pro t margin = 0%

C3 - PG1 Pro t margin = 10%

Postings
The value of the inventory asset is reduced at company C1 by the interunit pro t (USD 100), and the offsetting entry is posted
to the respective income statement item at the inventory-managing unit.

Company C1 incurs deferred taxes of USD 40.

Net income is reduced by USD 60.

Cons Group Cons Unit Item Consolidated Value

CG C1 Inventory (B/S) 100-

CG C3 Offsetting entry (I/S) 100

CG C1 Deferred taxes (B/S) 40

CG C1 Deferred taxes (I/S) 40-

CG C1 Retained earnings (B/S) 60

CG C1 Net Income (I/S) 60-

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Example 2: Elimination Logic for Supply


Chains
Initial Situation
Three companies belong to consolidation group CG. First, company C3 sells inventory assets in product group 02 to company
C2. Then, C2 sells the inventory to C1.

All units (in this case, companies) are consolidated using the purchase method.

The system calculates the interunit pro ts and the carrying (book) values for companies C2 and C3 based on the carrying value
reported by C1, the pro t margin percentages, and the supplier shares.

The document type is not set up for posting deferred taxes.

Additional Financial Data


This data is located in the additional nancial data as follows:

Cons Unit Partner Unit Prod. Group Key Figures

Inventory data C1 - PG02 Carrying value = USD


450

Supplier share C1 C2 PG02 Supplier share = 75%

C2 C3 PG02 Supplier share = 50%

Supplier data C2 - PG02 Pro t margin = 20%

C3 - PG02 Pro t margin = 25%

Postings
The value of the inventory asset is reduced at company C1 by the interunit pro ts (67.50 + 33.75 = USD101.25); and the
offsetting entry is posted to the respective income statement item at the supplying units.

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Net income is reduced by USD 101.25.

Cons Group Cons Unit Item Consolidated Value

CG C1 Inventory (B/S) 101.25-

CG C2 Offsetting entry (I/S) 67.50

CG C3 Offsetting entry (I/S) 33.75

CG C1 Retained earnings (B/S) 101.25

CG C1 Net income (I/S) 101.25-

Location of Values
For the inventory data, you can de ne how the system accesses the data that is necessary for eliminating interunit pro t or loss
in transferred inventory.

Additional nancial data must always be recorded for supplier data and the supplier share.

Data Required for Elimination of IU Pro t/Loss in Transferred Location of Values


Inventory

Inventory data Totals database or additional nancial data

Supplier data Additional nancial data

Supplier share Additional nancial data

Additional Financial Data


De nition
Information that is required in addition to or instead of the data in the totals database (meaning in addition to or instead of the
balance sheet, income statement, and so on).

For the Elimination of Interunit Pro t/Loss in Transferred Inventory, the additional nancial data is data on the interunit
delivery of goods and services:

Inventory data

Supplier data

Supplier share

Note
As an alternative, you can have the system also read the inventory data from the totals database. See the section
Location of Inventory Data.

Use
In the Elimination of Interunit Pro t/Loss in Transferred Inventory, the additional nancial data is used to determine

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the book value and

the group cost of goods manufactured

of an asset. This calculation is based on the standardized nancial data that considers the incidental acquisition costs that must
be capitalized.

Structure
Inventory Data

The inventory data includes:

Versions

Fiscal year and period

Consolidation unit (here: inventory-managing consolidation unit)

Partner unit (here: supplying consolidation unit; optional for postings at posting level 30; if no partner unit is speci ed in
the additional nancial data, the system determines this from the supplier share)

Product group

Balance sheet item

Book value in the reporting period

Valuation allowances (allowing losses)

This includes non-permanent valuation allowances (for example, non-permanent lump sum valuation allowances for
spare parts).

Valuation allowances (disallowing losses)

A valuation allowance disallowing losses is a permanent valuation allowance that must not convert a positive gross
interunit pro t/loss (gross interunit pro t/loss = book value in reporting period - group cost of goods manufactured) to
an interunit loss, so as not to violate a principle of prudence and lowest value applied in the individual nancial
statements. The interunit pro t and loss to be eliminated is not negative.

Inventory quantity

Incidental acquisition costs

The incidental acquisition costs are incidental acquisition costs that must be capitalized from the group's perspective,
which increase or reduce the group cost of goods manufactured. From the perspective of the consolidation units, these
incidental costs would be posted successfully with an effect on net income as soon as they are incurred.

If necessary, percentage rate of incidental costs

Supplier data

The supplier data includes:

Versions

Starting year and starting period

Consolidation unit (here: supplying consolidation unit)

Partner unit (here: inventory-managing consolidation unit; entry always optional)

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Product group

IPI (as markup or gross margin)

Rate of distribution costs of sales

Rate of cost of goods manufactured per unit of measure or of sales

The supplier data is valid in all subsequent periods after the starting period, meaning that you do not need to reenter it if the
supplier data has not changed. This minimizes the data entry effort.

IPI Variants

Pro t percentage 20

Sales at supplier 300

Pro t if "IPI markup" is used for the calculation

300 * 20/120 = 50

Pro t if "IPI gross margin" is used for the calculation

300 * 20/100 = 60

Supplier Share

The system needs the supplier share if you want to map supply chains. The supplier share includes:

Versions

Starting year and starting period

Consolidation unit (here: inventory-managing consolidation unit)

Partner unit (here: supplying consolidation unit)

Product group

Supplier share in percent

The supplier share de nes the percentage of inventory that the relevant consolidation unit delivers.

If you specify the supplier share, the system calculates supply chains.

However, the supplier share is taken into account only when the execution of elimination of interunit pro t/loss in
transferred inventory is group-based (that is, when posting level 30 is used).

 Example
Inventory data: consolidation unit A, partner unit initial, book value USD 1000, meaning that consolidation unit A has
an inventory of USD 1000

Supplier share data: consolidation unit A, partner unit B, supplier share 50%, meaning that 50% of the inventory of
consolidation unit A was delivered by B

Percentage rate of incidental costs

See Also

Manual Data Entry of Additional Financial Data


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Validation of Additional Financial Data

Reuse of Additional Financial Data

Product Group
De nition
An aggregation of individual products. The criterion for the aggregation is the similarity in the type or use of the individual
products.

 Example
In the automobile industry, you might create product groups for the various versions of individual vehicle models.

Use
The product group is only used in the elimination of interunit pro t/loss in transferred inventory.

The product group classi es the inventory items into logistical units and is used to structure the calculation of the interunit
pro t or loss from the transfer of goods and services between consolidation units.

The system automatically performs the elimination of interunit pro t/loss and the associated valuation allowance for the
product groups de ned in customizing at the level of either inventory items or product groups.

The interunit pro t/loss is calculated at the product group level.

But the document is posted at the inventory item level.

Structure
You create product groups in accordance with the accounting requirements of your consolidation group.

The product groups are read from the additional nancial data.

Integration
When customizing the posting items, you determine the combinations of items and product groups. For these combinations you
then determine the posting items for the interunit pro t/loss (offsetting item, translation differential items, and items for
transferring distribution costs).

Location of Inventory Data


Use
You can specify that inventory data is read from the totals database or from additional nancial data.

Features

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When inventory data is read from the totals database, you are spared the extra effort in entering additional nancial data and
validating that data.

The system can read the following inventory data from the totals database:

Gross book value and inventory quantity

Valuation allowance allowing losses

Valuation allowance disallowing losses

Incidental costs or percentage rate of incidental costs

Customizing

Customizing settings are dependent on the consolidation area. They belong to the special version for elimination of interunit
pro t/loss in transferred inventory, but they are not time-dependent.

You de ne single selections to have the system read the relevant totals data. The selections are comprised of inventory items,
product groups, and subassignments. If you de ne a single selection with a combination of inventory items and product groups,
the system automatically reads the related subassignments according to the breakdown categories that are shared between
the different inventory items. Subassignments can be, for example, custom subassignments, transaction types, subitems, or
subitem categories. However, subassignments cannot be product groups, partner units, investor units, or investee units. Once
the de nitions are complete you can specify the desired values for the subassignments.

Note
If you use the transaction type as a subassignment for gross book value, valuation allowances, or incidental costs, you also
need to specify the value for the carry-forward transaction type.

You use the values for the subassignments to determine the gross book value or inventory quantity, valuation allowances, and
incidental costs.

The following conditions must be met for single selections:

Single selections of inventory items and product groups may not overlap.

Single selections for the respective subassignments (for gross book value, valuation allowances, and incidental costs)
also may not overlap.

When you save your Customizing settings, the system checks that the following requirements are ful lled:

All inventory items require breakdowns by product group, partner unit, and one or more additional subassignments.

At least some of the breakdown categories of the inventory items of a single selection must have the same
subassignments; only then is the system able to determine the subassignments.

If a single selection contains transaction types, the carryforward transaction type must be contained in the same single
selection as the transaction type of the original document. If it is not, the data that is carried forward can no longer be
found once the balances have been carried forward. (See also the note shown above.)

The single selections may not overlap (see earlier).

If any of these requirements are not ful lled, the system issues an error message.

Currency Translation

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When additional nancial data is read, the system translates data recorded in local currency for the elimination of interunit
pro t/loss in transferred inventory using both the exchange rate indicator and the comparative exchange rate indicator of the
task. The system uses the comparative exchange rate indicator to determine and record currency translation differences (see
Recording of Currency Translation Differences).

When totals data is read, the system translates the totals data in the currency translation task prior to the task for elimination
of IU pro t/loss in transferred inventory (IPI). In this case, the system uses the comparative exchange rate indicator of the IPI
task as well to record currency translation differences.

Database Lists

When the system reads the inventory data from the totals database, the database list displays the data in both local currency
and group currency.

When the system reads the inventory data from the totals database, the selection screen for listing inventory data provides the
following option:

You can determine whether the system should read the logical or the physical data stream. If the system reads the data from
the totals database, you must choose the option for the logical data stream; only if you choose this option does the system use
special logic when reading from the totals database. (If you choose the physical data stream when data is read from the totals
database, the physical data stream does not provide any data because it is intended for additional nancial data only.)

Activities
Customizing

Prerequisite:

If you want to choose additional nancial data as the data source for inventory data, the data basis needs to contain the
InfoProvider for inventory data. This is not necessary if you want to read the inventory data from the totals database.

Procedure:

1. In the process view of the consolidation workbench, choose Consolidation Functions Elimination of IU Pro t/Loss in
Transferred Inventory Settings Location of Values .

2. Go to the General tab page and specify the location from where the inventory data is to be read (totals database or
additional nancial data).

3. If you specify the totals database, also go to the Inventory Data tab page and specify the single selections, which should
consist of inventory items and product groups.

4. Follow these steps for each single selection:

a. Go to the detail view for the single selection by choosing the navigation arrow.

The detail view shows the subassignments for gross book value, valuation allowance allowing losses, valuation
allowance disallowing losses, and incidental costs (see earlier).

b. Specify the appropriate values for each subassignment.

5. Save your entries.

Posting Items
De nition
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Balance sheet or income statement items that are to be automatically posted for the elimination of interunit (IU) pro t/loss in
transferred inventory.

Structure
Combinations of Inventory Items and Product Groups

You can assign a single selection of product groups (that is, one, several, or all product groups ) to a single selection of inventory
items .

For each combination of inventory items and product groups, you determine the posting items:

for the interunit pro t/loss

for translation differences (if applicable), and...

for the distribution costs (if applicable)

The Posting Items in Detail

Posting Items for Interunit Pro t/Loss

The system offsets the interunit (IU) pro t/loss to be eliminated with the inventory item. The assignment of the item for the
offsetting entry determines the treatment of interunit pro t/loss: The system either posts the IU pro t/loss to an income
statement item (affecting earnings) – the standard procedure – or it posts to a stockholder’s equity item (without affecting
earnings).

When you offset interunit pro t/loss with an effect on earnings, you can determine which income statement item is posted for
each inventory item. You can specify a debit item and credit item for the offsetting entry, which, in turn, are further speci ed by
all subassignments.

When de ning the tasks, you also decide whether the offsetting entry is posted to the inventory-managing consolidation unit or
the supplying consolidation unit.

Posting Item for Translation Differences

You can use the posting items for translation differences to separately post and disclose translation differences from interunit
pro t/loss in your consolidated nancial statements.

Posting Item for Distribution Costs

You can use the posting items for distribution costs if your corporate group uses cost of sales accounting in its income
statement and, for this reason, you need to disclose your sales-related distribution costs as an element of cost of goods
manufactured .

Elimination of Interunit Pro t/Loss


Prerequisites
You have recorded the additional nancial data for the elimination of IU pro t/loss in transferred inventory .

You have made your customizing settings for the elimination of IU pro t/loss in transferred inventory .

Activities
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You execute the task in the consolidation monitor. As a result, the system:

1. Calculates the group cost of goods manufactured

2. Calculates and posts the interunit pro t/loss to be eliminated

Calculation of the Group Cost of Goods


Manufactured
Use
The calculation of the group cost of goods manufactured (COGM) is the basis for determining the interunit pro t or loss to be
eliminated. In accordance with the economic unit concept, this cost is determined for all consolidation units of the group as if
they were a single entity. Transportation costs for goods transferred within the corporate group, for example, are considered
distribution costs by the individual enterprise, and are considered part of COGM by the corporate group.

Prerequisites
The following data is required for calculating the group COGM:

The COGM charged to the supplier

Incidental acquisition costs (for example, group-internal transportation costs)

The system requires the following information from the additional nancial data or the totals database:

Inventory data

Consolidation units involved

Product group

Book value

Inventory quantity

Valuation allowances

Incidental acquisition costs

Supplier data

Consolidation units involved

Product group

Pro t margin

Rate of distribution costs (as % of sales)

Cost of goods manufactured (as % of sales or per unit of measure)

Supplier share (when accounting for supply chains; that is, when executing elimination of interunit pro t/loss with
posting level 30)

Supplier share

Percentage rate of incidental acquisition costs

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Features
Calculation of the Group COGM in Two-Sided Eliminations

The system can calculate group COGM in two ways:

Using the supplier’s pro t margin:

Assuming that net sales = book value + valuation allowances – incidental acquisition costs , the group COGM is
calculated as follows:

Group COGM = net sales * COGM percentage rate + incidental acquisition costs

Using the COGM per unit of measure and inventory quantity:

Group COGM = quantity * COGM + incidental acquisition costs

Note
When you start the elimination task, the system translates the inventory data and supplier data from local currency
to group currency to determine the interunit pro t/loss.

Calculation of the Group COGM in Supply Chains

See Calculation and Posting of the IU Pro t/Loss to Be Eliminated .

Calculation and Posting of the IU Pro t/Loss


to be Eliminated
Use
This function automatically calculates the amount of interunit (IU) pro t/loss to be eliminated, which results from group-
internal sales of goods and services between subsidiaries.

Prerequisites
The calculation of the group cost of goods manufactured forms the basis for the calculation of the interunit pro t/loss requiring
elimination.

Interunit pro t/loss has resulted from the sale of goods or services between individual units in the corporate group. From the
point of view of the group as a single entity, no such pro t/loss may occur. The amount of interunit pro t/loss calculated
depends on the volume of inventory transferred and the pro t percentages your group uses. Another factor in uencing the
pro t/loss are the distribution costs and other incidental acquisition costs that arise at different stages in the supply chain.
From the group’s point of view, these costs are considered part of the cost of goods manufactured as long as such goods are not
sold externally.

Features
Calculation of Interunit Pro t/Loss

Two-Sided Elimination

The system calculates the interunit pro t/loss requiring elimination as follows:

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(Net) book value in reporting period

+ Valuation allowance allowing losses

+ Valuation allowance disallowing losses,

that is, a valuation allowance that may not change an interunit


(gross) pro t into an interunit loss.

= Value of goods supplied / inventory value (= interunit transfer


price) = basis for group-internal transaction

- Incidental acquisition costs (as a monetary value or percentage of


sales); need to be capitalized from the point of view of the group

= Net sales

* COGM percentage = 100 – pro t percentage

The pro t percentage can be either a markup or a gross margin.

+ Incidental acquisition costs

= Group cost of goods manufactured

If a percentage rate is speci ed for the incidental acquisition costs, the group cost of goods manufactured is calculated as
follows:

Group COGM = net sales * (COGM percentage + incidental cost percentage)

The interunit pro t/loss to be eliminated is calculated as follows:

Book value

- Group COGM

= Interunit pro t/loss to be eliminated

System activities:

Net salesis determined.

All value adjustments made to the book value are reversed, giving the inventory value. The incidental acquisition costs (entered
either as percentages or as monetary values) are deducted from the inventory value, giving net sales.

The group cost of goods manufactured (COGM) is calculated by multiplying net sales by the COGM percentage rate and adding
the incidental acquisition costs (or by multiplying net sales by the sum of the COGM percentage plus the incidental acquisition
cost percentage).

The interunit pro t/loss requiring elimination is the difference between the book value and group COGM.

The Consolidation system gives equal consideration to incidental costs as well as the additions or reductions to the cost of
goods manufactured. This logic is based on the assumption that both gures are compatible.

You can choose one of two methods for the automatic calculation of interunit pro t/loss contained in the invoice amount:

Method 1: Calculation with Percentage Rates (as shown above)

This procedure calculates the interunit pro t/loss using a pro t percentage rate that is recorded in the supplier data. Two
calculation variants are possible:

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The pro t percentage is used as a markup. The interunit pro t/loss is viewed as a percentage of the net invoice amount.

The pro t percentage is used as a gross margin of sales. The interunit pro t/loss is viewed as a percentage of the gross invoice
amount.

Interunit pro t/loss in percent: 20%

Invoice amount: USD 2,500

When the pro t percentage is a markup, the following interunit pro t is calculated:

2,500 * 20 / 120 = 417

When the pro t percentage is a gross margin, the following interunit pro t is calculated:

2,500 * 20 / 100 = 500

Method 2: Calculation with Quantities

The supplying unit’s COGM is calculated by multiplying the inventory quantity by the COGM recorded per unit of measure.
Hence, this method differs from the other method. The following formula is used:

Group COGM = quantity * COGM per unit of measure + incidental acquisition costs

Supply Chains

When supply chains are involved, the interunit pro t/loss is generally computed the same way as in two-sided trade
relationships; however, the supplier share is also taken into account:

The system computes the group COGM for the selling unit using the book value, the valuation allowances (from the inventory
data of the current period), and the incidental acquisition costs. When doing this, the system uses only the supplier share of the
inventory data.

In the formulas below, the seller is denoted with the number 2, the buyer with the number 1.

The value of goods supplied is computed as follows:

Value of goods supplied 2,1 = (book value 1 + (VA allowing losses 1 + VA disallowing losses 1)) * supplier share 2,1

Depending on how they are recorded, the total incidental acquisition costs (IAC) are computed as follows:

When recorded as percentage in the inventory data:

IAC 2,1 = value of goods supplied 2,1 * IAC% 1

When recorded as percentage in the supplier share:

IAC 2,1 = value of goods supplied 2,1 * IAC% 2,1

When recorded explicitly in the inventory data

IAC 2,1 = IAC1 * supplier share 2,1

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Net salesis computed as follows:

Net sales 2,1 = value of goods supplied 2,1 – IAC 2,1

Distribution costsare computed as follows:

Distribution costs 2,1 = net sales 2,1 * distribution costs in % 2,1

When percentage rates are used (method 1) and valuation allowances (VA) are taken into account, the system computes the
interunit pro t/loss as follows:

Interunit pro t or loss 2,1 = net sales 2,1 * pro t percentage 2,1 – (VA allowing losses 1 + VA disallowing losses 1) * supplier share
2,1

When using method 2 (calculation with quantities), you achieve the interunit pro t/loss in the same way as when using method
1 (calculation with percentage rates).

Each time the inventory item is sold down the supply chain, the system uses the group COGM of the previous sale as the value
of goods sold.

Valuation Allowance Disallowing Losses

The following situations can occur during the calculation of interunit pro t/loss:

Typically, interunit pro t/loss is calculated as follows:

Interunit pro t/loss to be eliminated = book value – group COGM

An exception exists if both of the following applies:

You perform valuation allowances disallowing losses.

The interunit pro t/loss to be eliminated is less than zero (in an interunit loss situation; that is, the gross interunit pro t/loss is
less than zero).

In this case, the interunit pro t/loss to be eliminated equals zero.

No loss can be posted in order to comply with the principles of prudence and lowest value in individual nancial statements.

The book value that results from valuation allowances disallowing losses is the maximum value permitted from group’s the point
of view.

Posting of Interunit Pro ts/Losses

In two-sided elimination, the system posts elimination entries for each pair of consolidation units; however, in consolidation
group-based elimination, the system posts elimination entries for each consolidation group. These entries are listed separately
in the audit trail.

It is possible to post deferred income taxes during the elimination run because the interunit pro t/loss incurred needs to be
allocated to the period in question. Interunit pro ts/losses incurred in one period are cleared in a later period. Income taxes,
therefore, are due at a later date (additional payments or refunds). If you want to post deferred income taxes, you can specify
this in the document type you use for the elimination.

Currency-related differences are recorded if the exchange rate indicator used for translating the balance sheet differs from the
exchange rate indicator used for the income statement and you speci ed a comparison exchange rate indicator in the
elimination task.

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Distribution costs can be reclassi ed to COGM (optional).

Example
The following example shows how interunit pro t/loss is calculated and posted for a pair of consolidation units.

Company A Sale of goods to company B Sale: USD 1,200 COGM: USD 1,000

Company B Sale of 80% of the goods from Sale: USD 1,300 COGM: USD 960
A to a third party

Company B Inventory supplied by company 20% of USD 1,200 = USD 240


A

Currency Translation Balance sheet and net income Income statement at average
at current rate of rate of AUS 1.50/USD
AUS 2.00/USD

Company A Company B Elimination of Sales Elimination of IU Group


P/L in Inventory

Message Message Total

Inventory 0 480 80- 400

Cash 2,400 200 2,600

Net income 400- 680- 80 1,000-

Stockholders’ equity 2,000- 2,000-

Company A Company B Elimination of Sales Elimination of IU Group


P/L in Inventory

Message Message Total

Sales 1,800- 1,950- 1,800 1,950-

COGM 1,500 1,440 1,800- 60 1,200

Currency translation 100- 170- * 20 250-


differences

Transfer to Net 400 680 80- 1,000


Income

*) The currency translation difference is calculated using the comparison exchange rate indicator.

Audit Trail of the Elimination of Interunit


Pro t/Loss
Use
The audit trail (or log) provides an overview of the interunit pro ts and losses incurred by the transfer of goods and services
between consolidation units. It lists the relevant sales, the group cost of goods manufactured, and other information.

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Features
The system generates an audit trail, which discloses the interunit pro t/loss that was incurred by the postings.

Two-Sided Elimination

The posted entries affect both the reporting consolidation unit and the partner unit.

The audit trail lists the following information for each pair of consolidation units:

An overview of the interunit pro t/loss eliminated

The interunit pro t/loss for the current period with posting documents

The interunit pro t/loss for the prior period with posting documents

Any messages incurred

The posting documents show the interunit pro t/loss incurred for each individual inventory item and product group, and all the
elimination entries posted in the balance sheet and income statement.

Consolidation Group-based Postings (Posting Level 30)

The key of the audit trail has the following characteristics:

Consolidation group

Inventory-managing consolidation unit (if so designed in the document structure)

Inventory item (if so designed in the document structure)

Product group (if so designed in the document structure)

The audit trail lists the following information for this combination of characteristics:

An overview of the interunit pro t/loss eliminated

The interunit pro ts or losses (for the current period and the prior period)

Details with regards to the accounting technique used – such as the group share, the effective group share, and the
interunit pro t/loss (for the current period and the prior period)

The distribution of the values for consolidation units that use the equity method (for the current period and the prior
period)

This sublist shows how the interunit pro t/loss is distributed across the direct investors (upper units).

Documents

Any messages incurred

Treatment of the Prior Period Portion of


Interunit Pro t/Loss
Use
Rather than eliminating the full amount of interunit pro t/loss in each period, the system can eliminate only the difference
since the prior period.
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Features
In the document type you can choose whether to automatically invert the documents:

If you opt for no automatic inversion of documents, the system calculates the interunit pro t/loss of the current period
and the prior period. However, in the current period the interunit pro t/loss of the prior period is merely listed in the
audit trail and not posted. The difference (delta) is posted.

If you opt for automatic inversion of documents, the period initialization posts an inversion of the prior period values
before posting the period values.

Document Without Automatic Inversion

Period IU Pro t/LossCurrent Period AutomaticInversion IU Pro t/LossPosted (Delta)

012 (prior year) 100 0 100

001 (current year) 150 0 150-100=50

002 50 0 50-150=100

003 0 0 0-50=-50

Period IU Pro t/LossCurrent Period AutomaticInversion IU Pro t/LossPosted

012 (prior year) 100 0 100

001 (current year) 150 -100 150

002 50 -150 50

003 0 -50 0

Recording of Currency Translation


Differences
Use
You can record currency translation differencesthat arise in the elimination of interunit pro t/loss in transferred inventory
when different exchange rate indicators are used.

Features
How Currency Translation Differences Occur

When the required data is read from additional nancial data:

Currency translation differences can result for the following reasons:

You record goods supply data grouped by pairs of consolidation units and grouped by product group. The system
translates this additional nancial data into group currency as part of the calculation of IU pro t/loss. The function uses

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the exchange rate indicator de ned in the task and determines the exchange rate for the inventory item assigned to the
product group.

Interunit pro t/loss is therefore calculated using the exchange rate for inventory accounts. The entry for the elimination
of IU pro t/loss is posted to an inventory item and its offsetting item (which is typically an income statement item).

Income statement items are often translated using different exchange rates than those for balance sheet items, for
example, with average rates. This means that the group currency value of the revenues or expenses to be eliminated can
differ from the calculated IU pro t/loss. This discrepancy is a translation difference.

Translation differences can occur in interunit pro t/loss in inventory because the relevant additional nancial data is
translated twice: once using the exchange rate indicator de ned in the task, and once using the comparative exchange
rate indicator (which is also de ned in the task).

When the inventory data is read from the totals database:

When the inventory data is read from the totals database, currency translation differences are incurred in the same way as
when the data is read from additional nancial data. However, the reference translation with the exchange rate indicator takes
place in the currency translation task, which is executed prior to the elimination of IU pro t/loss in transferred inventory (IPI).
As a result, the totals data already contains the amounts in group currency when the IPI task is executed. In this case, the
system uses the comparative exchange rate indicator from the IPI task to calculate the currency translation differences from
the elimination of interunit pro t/loss.

Posting of Currency Translation Differences

The system automatically posts translation differences that occur for inventory items to the differential item you specify
beforehand. This should be the same currency translation item you speci ed in Customizing for currency translation.

Temporal translation differences , which result from changes in exchange rates between two different closing dates, in uence
interunit pro t/loss. The system posts these differences with a summarized amount – that is, the system does not distinguish
between the “true pro t or loss” and the exchange rate differences between two closing dates.

Activities
To record currency translation differences, do the following:

If inventory data is read from the totals database, do the usual Customizing for Currency Translation . Make sure that the
inventory data is appropriately translated. If necessary, create a separate step for inventory data in the currency
translation method.

Specify the following for the task for elimination of interunit pro t/loss in transferred inventory (IPI), regardless of where
the values are located:

Exchange rate indicator

Comparative exchange rate indicator

In the settings for the IPI posting items, specify an item for currency translation differences for each single selection.

Transfer of Distribution Costs


Use
You use this function if your group uses cost of sales accounting in its consolidated income statement and you therefore need to
disclose your sales-related distribution costs as an element of the cost of goods manufactured.

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Activities
If you use this function, specify the following items in the maintenance of posting items:

The item from which the distribution costs are cleared

The item to which the distribution costs are posted

Different Accounting Techniques


Use
You use this function for elimination of interunit pro t/loss in transferred inventory if you want the calculation of interunit pro t
(or loss) to take the accounting technique into consideration ( purchase methodor equity method).

Integration
Elimination of interunit pro t/loss in transferred inventory reuses the posting items you have speci ed in the consolidation of
investments Customizing settings concerning equity method postings.

Prerequisites
You have activated Consolidation of Investments under Consolidation Functions Used in the settings for the consolidation area .

You have speci ed which accounting techniques are to be used under System Utilization in Customizing for Consolidation of
Investments.

Features
You can use eliminations of interunit pro t/loss in transferred inventory (IPI) to treat consolidation units according to their
accounting technique. The following accounting techniques are supported:

Purchase method

Equity method for affiliated units (or simply “equity method”)

Equity method for nonconsolidated units

These are consolidation units that are also controlled by the group but are nevertheless included in consolidation of
investments using the equity method.

In IPI, the accounting technique is dependent on the group’s level of in uence on the consolidation unit, and on the group’s
percentage of ownership (or share) in the consolidation unit:

Accounting Technique(for IPI) Group’s Level of In uence Group Share Treatment in Consolidation of
Investments

Purchase method Controlling relationship > 50% Purchase method

Equity method for affiliated Signi cant in uence < 50% Equity method
units

Equity method for Controlling in uence > 50% Equity method


nonconsolidated units

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IPI deals with two-sided relationships: the sale of an inventory asset by the seller to a buyer (or “inventory-managing
consolidation unit”). Therefore, the system must take both consolidation units into account. This results in the following cases:

Seller Buyer Factor Used to Eliminate IU Pro t

Purchase method Purchase method 100%

Purchase method Equity method for affiliated units Group share in buyer

Purchase method Equity method for nonconsolidated units 100%(due to controlling in uence)

Equity method for affiliated or Purchase method Group share in seller


nonconsolidated units

Equity method for affiliated or Equity method for affiliated or Group share in seller * group share in buyer
nonconsolidated units nonconsolidated units

The factor shown in the right column determines the ownership in the interunit pro t/loss to be eliminated (“effective group
share”).

The interunit pro t/loss of an equity-method unit is only partially realized. This is why the system eliminates only the group
share in the interunit pro t.

An exception is when a purchase-method unit sells an asset to a nonconsolidated unit: In this case, the system eliminates the
entire interunit pro t or loss because of the controlling in uence of the group.

Equity method entries are posted to the investor units with ownership in the equity-method unit – this is analogous to
subsequent consolidation in consolidation of investments.

Constraints

The accounting technique mutual stock methodis not supported.

The investor unit of an equity-method unit must itself be consolidated with the purchase method. This means that the
function does not support investors that are consolidated with the equity method or the mutual stock method.

Customizing for Consolidation of Investments features the Allow Negative Investments indicator (at Settings Negative
Stockholders’ Equity – Global ). This indicator speci es whether negative investments are permitted when the equity
method is used and the investment book value is updated. Elimination of interunit pro t/loss in inventory does not take
this indicator into account.

Activities
To ensure that equity-method units are treated, use a document type with the following properties:

Posting level 30 (consolidation group-dependent entries)

Business application Elimination of IU Pro t/Loss in Transferred Inventory

In the Customizing settings for the task, determine the following for equity-method units:

Whether elimination entries are posted to the investor units of the supplying unit if that unit is consolidated with
the equity method

Whether no elimination entries should be posted between two equity-method units

(If this is chosen and such units are part of a supply chain, that supply chain is disrupted at that point.)

In Customizing under Equity Method Posting , specify the investment item for Clearing – Consolidation Unit . (For
more details, see Customizing for Elimination of IU P/L in Transferred Inventory .)
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Specify the scopes of reported data for the equity method in Customizing for Consolidation of Investments. (For
more details, see Customizing for Elimination of IU P/L in Transferred Inventory .)

Proceed as otherwise described in Customizing for Elimination of IU P/L in Transferred Inventory .

To have consolidation of investments (C/I) automatically include the IPI postings, go to Customizing for C/I, then
to Location of Values for equity data, and choose between Read from Totals Database and Read from Totals
Database and Additional Financial Data . For the calculation base choose the document type for the elimination
of interunit pro t/loss in inventory.

Example
See the following examples concerning equity-method units:

Example: Sale from Purchase-Method Unit to Equity-Method Unit

Example: Sale from Equity-Method Unit to Purchase-Method Unit

Example: Equity-Method Units in Supply Chains

Example: Sale from Purchase-Method Unit


to Equity-Method Unit
Initial Situation
A unit that uses the purchase method sells inventory assets to a unit that uses the equity method. An interunit pro t of USD
100 is incurred.

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Explanations:

Seller point of view:

75% of the interunit pro t is allocated to the consolidation group.

25% of the interunit pro t is allocated to minority interests.

Buyer point of view:

40% of the interunit pro t is allocated to the consolidation group.

60% of the interunit pro t is realized.

The minority interests of the seller are recorded in consolidation of investments in the activity subsequent consolidation. The
document of the interunit pro t elimination is the calculation base for consolidation of investments. (See the remarks regarding
which customizing settings are necessary for consolidation of investments.)

Repd Fin. Data Elim. of IU P/L in Inv. Consolidation of Investments Total♠

100- -(-100*40%)=40 -(-100+40)*25%=15 45-

Postings

Postings when the Purchase Method Is Used


The following entries are posted when the purchase method is used for both consolidation units:

Reported Financial Data Elim. of IU P/L in


Inventory w/Purchase
Method

Item Seller InvMg Unit Seller InvMg Unit

Cash 1100 1100-

Inventory 1000- 1100 100-

Retained Earnings, CY 100- 100

Elimination Between 100- 100


Units

Sales 1100-

Cost of Goods 1000 100


Manufactured

Transfers to Retained 100 100-


Earnings

Postings when the Equity Method for Affiliates Is Used


The following applies because the equity method is used for the inventory-managing unit:

Only the group share is eliminated.

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The elimination entries are posted to the investment items.

The elimination takes place at the investor units (upper units).

To determine the percentage of interunit pro t to be eliminated, the system needs to know the ownership structure the equity-
method unit belongs to.

Document for the Elimination of Interunit Profit (taking the ownership structure into account)

Item Seller I1 I2

Investment 10- 30-

Inventory

Retained Earnings, CY 40

Elimination Between Units 40- 10 30

Cost of Goods Manufactured 40

Transfers to Retained Earnings 40-

Explanations:

In contrast to postings at an inventory-managing unit that uses the purchase method, here the system posts to the investment
item.

The system posts to both investors I1 and I2 (rather than the inventory-managing unit).

The amount to be eliminated (USD 40) results from the multiplication with the group share of the inventory-managing unit.

The total amount to be eliminated (USD 40) is distributed between the two investor units according to their percentages of
ownership (USD 10 and USD 30).

Caution: Multiplication with the group share can produce rounding errors. This does not occur in our example because of the
gures we have chosen.

The table that follows shows an overview of the reported nancial data, the elimination entries, consolidation of investments,
and the disclosure of the results in reporting.

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Repd Fin. Data Elim. of IU C/I Reporting


P/L in Inv.

Item Seller InvMg Seller I1 I2 Seller Seller I1 I2


Unit

Cash 1100 1100- 1100

Investment 10- 30- 10- 30-

Inventory 1000- 1100 1000-

Retained 100- 40 15 45-


Earnings, CY

MI–Net 15- 15-


Income CY

Elimination 40- 10 30 40- 10- 30-


Between
Units

MI–Income 15 15
Stmt

Sales 1100- 1100-

Cost of 1000 40 1040


Goods
Manufactured

Transfers to 100 40- 15- 45


Retained
Earnings

Explanation:

Consolidation of investments: Posting is based on the seller group share of 75%.

Postings when the Equity Method for Nonconsolidated Units Is Used


If the inventory-managing unit would be a nonconsolidated equity-method unit instead of an affiliated equity-method unit, the
postings would look as follows:

Repd Fin. Data Elim. of IU C/I Reporting


P/L in Inv.

Item Seller InvMg Seller I1 I2 Seller Seller I1 I2


Unit

Cash 1100 1100- 1100

Investment 25- 75- 25- 75-

Inventory 1000- 1100 1000-

Retained 100- 100 0 0


Earnings, CY

MI–Net 0 0
Income CY

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Repd Fin. Data Elim. of IU C/I Reporting


P/L in Inv.

Item Seller InvMg Seller I1 I2 Seller Seller I1 I2


Unit

Elimination 100- 25 75 100- 25 75-


Between
Units

MI–Income 0 0
Stmt

Sales 1100- 1100-

Cost of 1000 100 1100


Goods
Manufactured

Transfers to 100 100- 0 0


Retained
Earnings

Explanations:

The elimination entries eliminate the entire amount of interunit pro t (USD 100).

Consolidation of investments has nothing to eliminate.

Example: Sale from Equity-Method Unit to


Purchase-Method Unit
Initial Situation
A unit that uses the equity method sells inventory assets to a unit that uses the purchase method. An interunit pro t of USD
100 is incurred.

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Explanations:

The group shares chosen for this illustration are unrealistic: A group share in an equity-method unit cannot be 75%. These
gures were chosen to better compare the Example: Sale from Purchase-Method Unit to Equity-Method Unit .

In the consolidated statements, the seller discloses only the group share in the interunit pro t (75% of USD 100).

The elimination entries now are not allowed to ow into consolidation of investments because minority interests are already
taken into account. Consolidation of investments recognizes these equity-method postings because the document type has the
business application elimination of interunit pro t/loss in transferred inventory and because the elds for the investee units
are lled. Therefore, consolidation of investments ignores these equity-method postings.

The entries of the interunit pro t elimination and the entries of consolidation of investments balance each other out, resulting
in a total of zero.

The reported nancial data is not displayed in reporting.

Reported Financial Data Elim. of IU P/L in Inv. Consolidation of Investments Total

100- -(-100*75%)=75 -100*75%=-75 0

Postings
To determine the percentage of interunit pro t to be eliminated, the system needs to know the ownership structure the equity-
method unit belongs to (in this case, the selling unit).

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Document for the Elimination of Interunit Profit

Item I1 I2 Inventory-managing Unit

Investment 0 0

Inventory 75-

Retained Earnings, CY 40 35

Elimination Between Units 40- 35- 75

Sales, Equity Method 40 35

Transfers to Retained Earnings 40- 35-

Explanations:

The investment posting triggered by the net income and the investment posting triggered by the elimination balance each
other out.

The amount to be eliminated (USD 75) results from the multiplication with the group share of the seller.

The total amount to be eliminated (USD 75) is distributed between the two investor units according to their percentages of
ownership (USD 40 and USD 35).

The table that follows shows an overview of the reported nancial data, the elimination entries, consolidation of investments,
and the disclosure of the results in reporting.

Repd Fin. Data Elim. of Cons. of Reporting


IU P/L in Invest.
Inv.

Item Seller InvMg I1 I2 InvMg I1 I2 I1 I2 InvMg


Unit Unit Unit

Cash 1100 1100-

Investment 0 0 50 50 50 50

Inventory 1000- 1100 75- 1025

Retained 100- 40 35 40- 35- 0 0


Earnings, CY

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Repd Fin. Data Elim. of Cons. of Reporting


IU P/L in Invest.
Inv.

Item Seller InvMg I1 I2 InvMg I1 I2 I1 I2 InvMg


Unit Unit Unit

MI–Net 10- 15- 10- 15-


Income CY

Elimination 40- 35- 75 40- 35- 75


Between
Units

MI–Income 10 15 10 15
Stmt

Sales, Equity 40 35 50- 50- 10- 15-


Method

Sales 1100-

Cost of 1000
Goods
Manufactured

Transfers to 100 40- 35- 40 35 0 0


Retained
Earnings

Example: Equity-Method Units in Supply


Chains
Initial Situation
The company C3 consolidated using the purchase method delivers inventory items to the equity-method associated company
C2; this results in an interunit pro t to the amount of 100. In turn, the company C2 delivers the same assets to the equity-
method company C1; this does not result in an interunit pro t or loss.

Legend:

For the sale from C3 to C2: 60% of the interunit pro t/loss has been realized.

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For the next sale from C2 to C1: A further 50% of the interunit pro t/loss has been realized.

Accordingly: 40% * 50% = 20% is to be eliminated. This percentage is called effective group share. The effective group
share is assigned to the C3/C1 pair.

The effective group share is usually the product of the group shares in the supply chain between the inventory-managing
unit and the unit currently considered (including this pair). Exception: When a purchase-method unit sells to a
nonconsolidated unit, the group share of the equity-method unit is not considered.

Postings
To determine the share of the interunit pro t/loss to be eliminated, the system must be familiar with the investment structure
in which the equity-method unit is included (here the inventory-managing unit).

Document for elimination of interunit profit/loss

Item C3 I1 I2

Investment 8- 12-

Inventory

Retained net income current 20


year

Cons. unit clearing 20- 8=100*0.4*0.2 12=100*0.4*0.3

Cost of goods manufactured 20

Transfers to retained net income 20-

Legend:

C3: The amounts were multiplied by the effective group share.

I1 and I2: The amounts were divided to these investor units (according to the ownership path and taking the group share
of C2 to the amount of 40% into account).

Customizing for Elimination of IU Pro t/Loss


in Inventory
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Purpose
You make Customizing settings to have the consolidation system automatically post entries to eliminate interunit pro ts and
losses in transferred inventory.

Prerequisites
If you intend to use currency translation, you have de ned the Customizing settings for currency translation, which
involves de ning the exchange rate types and the exchange rates. (You do not need to create a currency translation
method for the elimination of interunit pro t/loss in transferred inventory.)

The additional nancial data is ready and can be collected by means of one of the methods for data collection .

Process Flow
De ning the Document Type

Posting level:

If you want to post two-sided elimination entries only, de ne a document type with posting level 20.

If you want to also post elimination entries for supply chains, de ne a document type with posting level 30
(consolidation group-based entries).

Specify that the document type is to be used for eliminations of interunit pro t/loss in transferred inventory.

De ning a Task

De ne a task for the elimination of interunit pro t/loss in transferred inventory.

1. Assign a consolidation frequency to the task.

2. Assign a document type .

3. Specify the exchange rate indicator and the comparative exchange rate indicator for the currency translation of nancial
statement items.

4. Decide whether the system is to take valuation allowances into account – that is, whether the calculation of the group
cost of goods manufactured (COGM) uses the gross book value or the net book value (which discounts the valuation
allowances).

5. Decide whether offsetting entries are posted to the inventory-managing consolidation unit (buyer) or the supplying
consolidation unit (seller).

6. Indicate whether interunit losses may be posted.

7. Specify the following for consolidation units that use the equity method:

Whether elimination entries are posted to the investor units (upper units) of the supplying unit if those units use
the equity method

Whether no elimination entries should be posted between two equity-method units

(If this is chosen and such units are part of a supply chain, that supply chain is disrupted at that point.)

8. Specify the rst scal year and period the task is to be executed in.

9. If desired, specify your preferences for the task log .

10. Save the task.

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Assign the task to a task group (in the process view of the Consolidation Workbench, choose Consolidation Monitor Task
Hierarchy ).

De ning Product Groups

De ne the product groups, which will be the basis for eliminating interunit pro t/loss.

Note
You will only be able to use the product groups in the additional nancial data.

Specifying Location of Values

Specify the location from where the inventory data is to be read (totals database or additional nancial data).

If you choose totals data, go to the Inventory Data tab page and specify the single selections for the inventory items and
product groups. This ensures that the correct totals data is read.

De ning Inventory Items

De ne the inventory items and their subassignments. When doing this, specify the subassignments for all relevant additional
nancial data.

De ning Posting Items

1. De ne the combinations of inventory items and product groups.

You can use either single values or ranges of values for specifying inventory items and product groups.

The combinations may not overlap.

2. Do the following for each individual combination:

Specify the offsetting item for posting interunit pro t/loss. (These are typically income statement items.)

If applicable, specify the items for posting currency translation differences.

If applicable, specify the items for the transfer of distribution costs. When doing this, specify:

The item from which the distribution costs are cleared

The item to which the distribution costs are posted

Equity Method Posting

If you use posting level 30 for the elimination of interunit pro t/loss in transferred inventory, specify which investment item is to
be used in the equity method for updating the investment book value that results from the elimination across different
consolidation units. This investment item cannot be de ned in the Customizing settings for consolidation of investments. This is
because the Clearing - Consolidation Unit item is not an equity item and, therefore, cannot be processed in consolidation of
investments.

This equity method posting setting is dependent on the special version for consolidation of investments.

Relationship to Customizing Settings for Consolidation of Investments (Scopes of Reported Data for Equity Method)

The following scopes of reported data for consolidation of investments are relevant for the elimination of interunit pro t/loss in
transferred inventory:

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Net income

Currency translation differences (if located in the balance sheet)

Elimination of interunit pro t/loss in transferred inventory identi es the scope of reported data for net income as follows:

1. The system examines scopes of reported data whose offsetting items are in the income statement (income statement-
related scopes).

2. If several income statement-related scopes exist, the system chooses the one in which the reported item is the same as
the global net income item (in the process view of the Consolidation Workbench, choose Master Data Items Selected
Items Clearing - Balance Sheet ).

3. If still no scope of reported data is found, the system selects an arbitrary income statement-related scope.

The scope of reported data for net income is used for all postings to the income statement (offsetting entry to the inventory
item, the distribution costs item, as well as the currency translation differences item in the income statement).

The following applies if currency translation differences are located in the balance sheet: The reported item for the scope of
reported data for currency translation differences must be the item that is de ned under Currency Translation Difference in
the Customizing settings for elimination of interunit pro t/loss in transferred inventory.

Result
You can record additional nancial data (inventory data, supplier data, supplier share). To do this, you execute the respective
data collection task in the Consolidation Monitor.

You execute the task for the elimination of interunit pro ts and losses in the consolidation monitor.

The system calculates and posts the interunit pro t/loss, and logs the results in an audit trail.

Elimination of Interunit Pro t/Loss in


Transferred Assets
Purpose
Interunit pro ts or losses are incurred when noncurrent assets (such as property, plant, and equipment) are sold by one
consolidation unit to another consolidation unit within the same consolidation group (for example, a corporation).

Statutory accounting requirements and often management accounting policies require that the consolidated statements
portray the group as a single entity. Hence, the sale of a noncurrent asset between two consolidation units needs to be treated
as if the asset was merely moved from one plant to another. You can use this component to automatically eliminate such
interunit pro ts and losses.

The acquiring consolidation unit (buyer) records the asset in its own balance sheet with the amount it paid to the supplying
consolidation unit (seller), including incidental acquisition costs. This affects the amounts to be depreciated. The buyer also
might use a method of depreciation that differs from the one used by the seller. This component enables you to automatically
adjust the depreciation charges so that they are correct from the group’s point of view.

You also can employ transaction types to correctly disclose the assets in the group’s asset history sheet (or statement of
changes in property, plant, and equipment).

Implementation Considerations
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The following prerequisites must be met before you can implement this component:

Interunit pro ts or losses requiring elimination have been recorded in your group as a result of the sale of noncurrent
assets.

The consolidation units involved in the transfer are both included in the consolidated nancial statements.

You want the posting of the elimination entries to be automatic.

Integration
Task Hierarchy and Task Sequence

The entries posted by the task for eliminating interunit pro ts or losses (IPA task) are coded with posting level

The task hierarchy must contain only one IPA task. The IPA task must be run after the tasks that post with posting level 20, and
before the task(s) for consolidation of investments.

Data Collection

In addition to the reported nancial data of the subsidiaries, you need to collect the master data and the additional nancial
data of the assets.

To transfer this data to the consolidation system, you can use manual data entry or the methods available for automatic data
collection (such as exible upload, load from data stream, copy, and delete).

Period Initialization

You need a period initialization task to automatically adjust the additional nancial data concerning interunit pro ts/losses for
the new consolidation period (for example, a periodic depreciation charge).

Features
You can use this component to eliminate interunit pro ts and losses resulting from asset transfers, to record those assets
correctly in the consolidated statements, and to adjust the depreciation charges of those assets.

This feature is enabled not only for two consolidation units, but also for supply chains comprised of three or more consolidation
units.

The component can process the following types of transfers:

Transfers of assets capitalized within the consolidation group

Transfers of self-constructed assets

Sales of assets to third parties

When an asset is transferred within a consolidation group, you can decide whether the adjustments to the depreciation charges
should use the settings of the seller or the settings of the buyer.

In the document type you can decide whether to record deferred taxes.

A log shows the results of the elimination of interunit pro t/loss in transferred assets.

Constraints

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The elimination of interunit pro t/loss in transferred assets component calculates all gures in group currency and
disregards any differences from currency translation.

The component does not calculate or disclose minority interests. This rather is done in consolidation of investments.

The component performs eliminations only if both the seller and the buyer of the asset are consolidated with the
purchase method.

The component does not take into account any changes in group shares, nor any change in the accounting technique.

The component does not process writeups for noncurrent assets.

The component does not process 1:n, n:1, or m:n transfers of noncurrent assets. For example, this means that it does not
process transfers in which one asset at the supplying consolidation unit turns into four assets at the purchasing
consolidation unit.

The component does not process partial sales of noncurrent assets.

The component does not process supply chains in which a current (or inventory) asset turns into a noncurrent asset
(such as property, plant, or equipment), or vice versa.

Example
You can use elimination of interunit pro t/loss in transferred assets to portray the following accounting case:

Consolidation units A, B, and C belong to a single consolidation group. Company T is a third party that does not belong to the
group.

Unit A constructs asset 1111 itself in the year 01. In year 02, it sells the asset to unit B. Unit A uses straight-line depreciation.

In year 04, unit B sells the asset to unit C. Unit B uses the declining-balance method of depreciation.

In year 08, unit C sells the asset to company T. Unit C uses straight-line depreciation.

Elimination Logic
Use
The system uses dedicated logic for eliminating interunit pro ts and losses and for adjusting depreciation charges (when
applicable).

Prerequisites
You have made your settings in Customizing for Elimination of IU Pro t/Loss in Transferred Assets .

Features
Group Valuation

In group valuation, noncurrent assets are valuated from the group’s point of view. The decisive factors for group valuation of
assets are listed below:

Original value (acquisition costs) = original value of rst seller + incidental costs incurred in the supply chain

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The seller charges incidental costs (such as dismantling costs) to Other Expenses in the seller’s income statement. However,
the group might want to capitalize the incidental costs of the seller. In this case, these costs also need to be depreciated.

Beginning book value = ending book value of the asset sold as valuated by the group + incidental costs for the current transfer

You specify whether the method of depreciation, start of depreciation, percentage rate of depreciation, useful life, and scrap
value are based on the seller or the buyer. (See also the section below.)

Elimination of interunit pro t/loss and depreciation adjustment

Interunit Pro t or Loss

The interunit pro t/loss to be eliminated is calculated as follows:

IU pro t/loss = original cost buyer – ending book value seller – incidental costs seller – incidental costs buyer

Posting Options for Interunit Pro t/Loss: Gross Method and Net Method

You can choose between the gross method and the net method.

The gross method uses the following approach:

The sale and purchase are completely reversed by transferring the original acquisition costs and the accumulated
depreciation from the seller to the buyer.

The income statement of the seller is adjusted by the interunit pro t or loss.

The gross method completely adjusts the asset history.

The net method uses the following approach:

The acquisition cost of the buyer is adjusted by the interunit pro t or loss.

The offsetting entry is posted to the income statement of the seller.

If you choose the net method and the asset item has a breakdown by transaction types, the asset history sheet of the
consolidation group (or corporate group) shows a retirement and an acquisition for the same amount.

See also:

Example: Net Method and Gross Method

Example: Accounting for Incidental Costs

Depreciation Adjustment

As a rule, the depreciation is adjusted according to the depreciation parameters (method, percentage rate, and so on) of the
rst seller in the supply chain.

The acquiring consolidation unit depreciates “too much” because its acquisition cost also includes the interunit pro t. A
depreciation adjustment is posted to correct this excess depreciation.

The system calculates the depreciation adjustment during task execution. The adjustment is always the difference between
depreciation of the last buyer (in the chain) and the depreciation according to the group valuation.

As an alternative, you can have the system adjust the depreciation according to the depreciation parameters of the buyer. To do
this, you need to select the Valuation Allowance According to Buyer indicator.

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If this indicator is not selected anywhere in the supply chain, then the system applies the depreciation parameters of the rst
seller. If the indicator is selected, then the system applies the depreciation settings of the seller of the last transfer in which the
indicator is selected. Thus, you may want to select the indicator whenever the use of the asset changes and, therefore, the
depreciation parameters also change.

A supply chain has the following transfers:

Transfer Asset Sold by Asset Bought by Valuation Allowances

1 A B According to seller

2 B C According to buyer

3 C D According to seller

4 D E According to seller

In this example, the system uses the settings of consolidation unit C for the depreciation of the asset at consolidation unit E.

To determine the new book value of an asset, the owner of the asset performs an impairment test in regular intervals. If the new
book value is less than the group value, the excess in the group value needs to be written off using extraordinary depreciation. If
the new book value is not less than the group value, the group value remains the same.

You specify the extraordinary depreciation in the additional nancial data.

See also:

Example: Depreciation Adjustment

Example: Impairment Test

Values Proposed by Period Initialization

The period initialization task reads the additional nancial data for the previous consolidation periods and proposes values for
the depreciation in the current consolidation period.

When necessary, you can enter extraordinary depreciations (writedowns) or writeups in the data collection task that follows the
period initialization task.

Note
The consolidation frequency must be the same in both the period initialization task and the data collection task.

If you change the additional nancial data for an asset for previous consolidation periods, you have to execute the
period initialization task again for all subsequent consolidation periods.

See also: Example: Period Initialization and Data Collection

Inclusion of Transfers in the Elimination of IU Pro t/Loss in Transferred Assets

Beginning and End of the Supply Chain

The system includes in a supply chain only those transfers that begin inside the given consolidation group. These transfers can
be divided into those that end inside the consolidation group and those that end outside of the consolidation group (sale to

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third party).

Overall, the following types of transfers exist:

First Transfer in Supply Chain Last Transfer in Supply Chain Treatment in the System

A1 All transfers in this supply chain


Ends outside of
are ignored.
consolidation group
(sale to third party)

Occurs prior to current


consolidation interval

A2 Occurs within the current


Ends outside of IU pro t/loss is
consolidation interval
consolidation group eliminated for all
(sale to third party) transfers in the current
consolidation interval.
Occurs within the
current consolidation Entire history of all
interval transfers in the supply
chain is reversed.

B
Ends inside of IU pro t/loss is
consolidation group eliminated for all
transfers in the current
Occurs within the
consolidation interval.
current consolidation
interval Depreciation is
adjusted for all
transfers in the current
consolidation interval.

C Depreciation is adjusted for the


Ends inside of
last transfer.
consolidation group

Occurs prior to current


consolidation interval

D Entire history of all transfers in


Begins inside of Ends outside of
the supply chain is reversed.
consolidation group consolidation group
(sale to third party)
Occurs prior to current
consolidation interval Occurs within the
current consolidation
interval

See also: Example: Supply Chain

Different Accounting Techniques

The elimination of interunit pro t/loss in transferred assets posts elimination entries only for pairs of consolidation units in
which both units are consolidated using the purchase method.

The system treats transfers of assets between units consolidated with other accounting techniques as sales to third parties or
purchases from third parties.

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The following example shows a supply chain with consolidation units that have different accounting techniques:

Transfer, Transfer: Treatment in Elimination of IU Pro t/Loss in


Transferred Assets
No. Technique of Seller Technique of Buyer

1 Purchase method 1 Purchase method 2 Elimination of IU pro t/loss and


depreciation adjustment

2 Purchase method 2 Equity method 1 Sale to third party

3 Equity method 1 Purchase method 3 (ignored)

4 Purchase method 3 Purchase method 4 Elimination of IU pro t/loss and


depreciation adjustment (new supply chain)

Example: Interunit Pro t/Loss and


Depreciation Adjustment
At the beginning of year 06, consolidation unit A sells an asset to consolidation unit B:

Consolidation Unit A (Seller) Consolidation Unit B (Buyer)

Original value (acquisition cost) 1000 Original value 900

Beginning book value 500 Beginning book value 900

Ordinary depreciation:straight- 0 Ordinary depreciation:straight- 180


line over 10 years line over 5 years (20%)

Ending book value 0 Ending book value 720

This results in the following interunit pro t and depreciation adjustment for the year 06:

Interunit pro t = 900 – 500 = 400

Depreciation adjustment (assuming that the seller has a depreciation of 100 currency units)

= 180 – 100 = 80

Valuation Allowance of the Asset at Units A and B in Year 06:

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In the year following the asset transfer (year 07), the depreciation for the buyer also needs to be adjusted.

Consolidation Unit B (Buyer)

Original value 900

Beginning book value 720

Ordinary depreciation 180

Ending book value 540

Valuation Allowance of the Asset at Units A and B in Year 07:

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Example: Net Method and Gross Method


This example uses the following initial data:

The asset is sold at the beginning of the year.

Consolidation Unit A (Seller) Consolidation Unit B (Buyer)

Original value (acquisition cost) 1000 Original value 900

Beginning book value 500 Beginning book value 900

Ordinary depreciation:straight- 0 Ordinary depreciation 100


line over 10 years

Ending book value 0 Ending book value 800

Whether you use the net method or the gross method determines how the asset transfer and the elimination of interunit pro t
of 400 currency units are posted.

Elimination of Interunit Pro t/Loss Using the Net Method


The original cost of the buyer (unit B) is adjusted by the interunit pro t of 400. The offsetting entry with the amount of 400 is
posted to Cost of Goods Sold in the income statement of the seller (unit A).

Result using the net method: From the group’s point of view, the original value item of the buyer shows the correct net amount.

Item TT ABCF ASale BPurch. AIU Elim. APro t/Loss BPro t/Loss Total

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Item TT ABCF ASale BPurch. AIU Elim. APro t/Loss BPro t/Loss Total

Receivables 900 -900 0


from
Affiliates

Payables to -900 900 0


Affiliates

Original Beg 1000 1000


Value

Acq 900 -400 500

Ret -1000 -1000

Trf 0

Valuation Beg -500 -500


Allowances

Acq -100 -100

Ret 500 500

Trf 0

Interunit -400* 400* 0


Elimination

Retained -500 -500


Earnings,
Prior Year

Retained 0 -400 100 0 400* 0 100


Earnings

Revenue -900 900 0


from Sale of
Asset

Depreciation 100 100

Cost of 500 -900 400 0


Goods Sold

Transfers to 0 400 -100 0 -400* 0 -100


Retained
Earnings

Total 0 0 0 0 0 0 0

Abbreviations:

Boldface = elimination of interunit pro t/loss

* = automatic line items

TT = transaction type; Beg = beginning balance; Acq = acquisitions; Ret = retirements; Trf= transfers

Elimination of Interunit Pro t/Loss Using the Gross Method

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The sale and purchase are completely reversed through the transfer of the original value of 1000 and the accumulated
depreciation of 500 from the seller to the buyer. The income statement of the seller is adjusted by the interunit pro t of 400.

Result using the gross method: From the group’s point of view, the accounts of the buyer show the correct original value and
valuation allowances.

Item TT ABCF ASale BPurch. AIU Elim. APro t/Loss BPro t/Loss Total

Receivables 900 -900 0


from
Affiliates

Payables to -900 900 0


Affiliates

Original Beg 1000 1000


value

Acq 900 -900 0

Ret -1000 1000 0

Trf -1000 1000 0

Valuation Beg -500 -500


Allowances

Acq -100 -100

Ret 500 -500 0

Trf 500 -500 0

Interunit -400 400 0


Elimination

Retained -500 -500


Earnings,
Prior Year

Retained 0 -400 100 0 400 0 100


Earnings

Revenue -900 900 0


from Sale of
Asset

Depreciation 100 100

Cost of 500 -900 400 0


Goods Sold

Transfers to 0 400 -100 0 -400 0 -100


Retained
Earnings

Total 0 0 0 0 0 0 0

Example: Accounting for Incidental Costs


This example uses the following initial data:

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The asset is sold at the beginning of the year.

Consolidation Unit A (Seller) Consolidation Unit B (Buyer)

Original value (acquisition cost) 1000 Incidental acquisition costs 50

Beginning book value 500 Original value (acquisition cost) 950

Ordinary depreciation:straight- 0 Beginning book value 950


line over 10 years

Ending book value 0 Ordinary depreciation 0

(Assumes that there is no


depreciation and thus no
depreciation adjustment)

Incidental costs of sale 100 Ending book value 950

The interunit pro t is calculated as follows:

Interunit pro t = 950 – 500 – 100 – 50 = 300

When the gross method is applied, the system posts the following elimination entries:

The system posts the following in addition to the reversal of the sale and purchase, the reversal of the accumulated
depreciation, and the purging of the interunit pro t from the seller’s income statement: The incidental costs of 100 are posted
at the seller as "Other Expenses". The acquisition costs less incidental costs are posted at the buyer (OV Buyer – IC Seller – IC
Buyer = 950 – 100 – 50 = 800). This produces the correct original value of 1150 for the buyer.

Item TT A CF A Sale B Purch. A IU Elim. A Pro t/ B Pro t/ Total


Loss Loss

Receivables from 900 -900 0


Affiliates

Payables to -900 900 0


Affiliates

Original Value Beg 1000 1000

Acq 950 -800 150

Ret -1000 1000 0

Trf -1000 1000 0

Valuation Beg -500 -500


Allowances

Acq 0

Ret 500 -500 0

Trf 500 -500 0

Retained -500 -500


Earnings, Prior
Year

Interunit -300 300 0


Elimination

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Retained Earnings 0 -400 -50 0 300 0 -150

Revenue/Expense -900 900 0

Other Expenses 100 -100 0

Other Revenue -100 -50 -150

Cost of Goods 500 -900 400 0


Sold

Transfers to 0 400 50 0 -300 0 150


Retained Earnings

Total 0 0 0 0 0 0 0

Example: Depreciation Adjustment


This example uses the following initial data:

The asset is sold at the beginning of the year.

Consolidation Unit A (Seller) Consolidation Unit B (Buyer)

Original value (acquisition cost) 1000 Original value 900

Beginning book value 500 Beginning book value 900

Ordinary depreciation:straight- 0 Ordinary depreciation:straight- 180


line over 10 years line over 5 years

Ending book value 0 Ending book value 720

This results in the following interunit pro t and depreciation adjustment for the year 06:

Interunit pro t = 900 – 500 = 400

Depreciation adjustment = 180 – 100 = 80

The following gure illustrates the valuation allowances of the asset for consolidation units A and B:

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When the net method is applied, the system posts the depreciation adjustment of 80 and the interunit pro t of 400 as follows:

Item TT A CF A Sale B Purch. A IU Elim. A Pro t/ B Pro t/ Total


Loss Loss

Receivables 900 -900 0


from
Affiliates

Payables to -900 900 0


Affiliates

Original Beg 1000 1000


Value

Acq 900 -400 500

Ret -1000 -1000

Trf 0

Valuation Beg -500 -500


Allowances

Acq -180 80 -100

Ret 500 500

Trf 0

Interunit -400 400 0


Elimination

Retained -500 -500


Earnings,
Prior Year

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Retained 0 -400 180 0 400 -80 0
Earnings

Revenue -900 900 0


from Sale of
Asset

Depreciation 180 -80 100

Cost of 500 -900 400 0


Goods Sold

Transfers to 0 400 -180 0 -400 80 -100


Retained
Earnings

Total 0 0 0 0 0 0 0

Legend:

Boldface = depreciation adjustment

Red = correct depreciation

Example: Impairment Test


This example uses the following initial data:

The asset is sold at the beginning of the year.

Consolidation Unit A (Seller) Consolidation Unit B (Buyer)

Original value (acquisition cost) 1000 Original value 900

Beginning book value 500 Beginning book value 900

Ordinary depreciation:straight- 0 Ordinary depreciation:straight- 180


line over 10 years line over 5 years

Ending book value 0 Ending book value 720

The current value equals 250 currency units.

Extraordinary depreciation (labeled “Ex.D” in the gure below) is calculated as follows:

Extraordinary depreciation = ending book value buyer – current value = 720 – 250 = 470

Total depreciation is calculated as follows:

Total depreciation = ordinary depreciation + extraordinary depreciation = 180 + 470 = 650

The depreciation adjustment solely based on the impairment test is calculated as follows:

Depreciation adjustment = 650 – (100 + 150) = 400

The amount of 150 is arrived at because the valuation of the group may not exceed the valuation of the buyer. Therefore, this
part of the extraordinary depreciation must equal 150 to retain the group value of 250.

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Example: Period Initialization and Data


Collection
Period initialization reads the additional nancial data of the previous consolidation period (001/2000) and proposes a value
(100 currency units) for the depreciation for period 002/2000.

In the data collection task that follows, you specify an extraordinary depreciation (writedown) of 200 currency units.

This results in a total depreciation of 300 currency units.

Period Initialization Data Collection …

001/2000 002/2000 002/2000 002/2000

Original value 1000 1000 1000 …

Beginning book value 1000 900 900 …

Depreciation 100 100 100 …

Extraordinary 0 0 200 …
depreciation

Ending book value 900 800 600 …

Example: Supply Chain


Initial Data
This example uses the following initial data:

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At the beginning of year 05, consolidation unit A sells the asset to consolidation unit B.

At the beginning of year 06, consolidation unit B sells the asset to consolidation unit C.

At the beginning of year 07, consolidation unit C sells the asset to a third party (outside of the group).

Cons Unit A Cons Unit B Cons Unit C

Original value 1000 Original value 900 Original value 1200


(acquisition cost)

Beginning book value 500 Beginning book value 900 Beginning book 1200
value

Ordinary 0 Ordinary 180 Ordinary 120


depreciation:straight- depreciation:straight- depreciation
line over 10 years line over 5 years

Ending book value 0 Ending book value 720 Ending book value 1080

The following gure illustrates the depreciation for consolidation units A, B, and C, in the years 05, 06, and 07.

This results in the following interunit pro ts and depreciation adjustments and their respective journal entries.

Postings

Year 05 (Gross Method)


Interunit pro t = 900 – 500 = 400

Depreciation adjustment = 180 – 100 = 80

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Item TT ACF ASale BPurch. AIU Elim. AP/L BP/L Total

Receivables 900 -900 0


from
Affiliates

Payables to -900 900 0


Affiliates

Original Beg 1000 1000


value

Acq 900 -900 0

Ret -1000 1000 0

Trf -1000 1000 0

Valuation Beg -500 -500


Allowances

Acq -180 80 -100

Ret 500 -500 0

Trf 500 -500 0

Interunit -400 400 0


Elimination

Retained -500 -500


Earnings,
Prior Year

Retained 0 -400 180 0 400 0 100


Earnings

Revenue -900 900 0


from Sale of
Asset

Depreciation 180 -80 100

Cost of 500 -900 400 0


Goods Sold

Transfers to 0 400 180 0 -400 80 -100


Retained
Earnings

Total 0 0 0 0 0 0 0

Abbreviations:

See Example: Net Method and Gross Method

CF = balance carried forward

P/L = elimination of interunit pro t/loss in transferred assets

Year 06 (Gross Method)


Interunit pro t = 1200 – 720 = 480

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Depreciation adjustment = 120 – 100 = 20

Descriptions of Postings in Boldface:

100 + 900 = 1000:

The amount of 100 re ects the posting history of interunit elimination on the asset item for consolidation unit B.
This amount must be reclassi ed to consolidation unit C so that no elimination postings remain at B after the
transfer to C takes place.

The amount of 900 re ects the acquisition costs of the seller. These costs must be reclassi ed from transaction
type Retirement to transaction type Transfer .

-420 – 180 = 600:

The amount of –420 re ects the posting history of interunit elimination on the valuation allowances item for
consolidation unit B. This amount must be reclassi ed to consolidation unit C so that no elimination postings
remain at B after the transfer to C takes place.

The amount of –180 re ects the valuation allowance entry for the seller. This entry must be reclassi ed from
transaction type Retirement to transaction type Transfer .

Item TT A B C A B C Tot

CF 00 CF 00 CF 00 CF P/L CF P/L CF P/L

Cash 900 -900 1200 -1200 0

Original Beg 900 100 100


value

Acq 1200 -1200 0

Ret -900 900 0

Trf -1000 1000 0

Valuation Beg -180 -420 600


Allow.

Acq -120 20 -10

Ret 180 -180 0

Trf 600 -600 0

Interunit -400 400 -800 800 0


Elimination

Retained -900 180 400 -80 -40


Earnings,
Prior Year

Retained 0 0 0 -480 0 120 0 0 0 480 0 -20 100


Earnings

Revenue -1200 -12


from Sale of
Asset

Depreciation 120 -20 100

Cost of 720 480 120


Goods Sold

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Item TT A B C A B C Tot

CF 00 CF 00 CF 00 CF P/L CF P/L CF P/L

Transfers to 0 0 0 480 0 -120 0 0 0 -480 0 20 -10


Retained
Earnings

Total 0 0 0 0 0 0 0 0 0 0 0 0 0

Year 07 (Gross Method)


Interunit pro t = -400 – 480 = -880 (reverses the two elimination entries)

Depreciation adjustment = -20 – 80 = -100 (reverses the two depreciation adjustments)

Descriptions of Postings in Boldface:

200, 580:

These reverse the elimination entries posted to transaction type Retirement. (The interunit pro t was realized. All
elimination entries need to be reversed.)

-400, -480, 80, 20:

-400: reverses the elimination of interunit pro t at consolidation unit A

-480: reverses the elimination of interunit pro t at consolidation unit B

80: reverses the depreciation adjustment at consolidation unit B

20: reverses the depreciation adjustment at consolidation unit C

Item TT A B C A B C T

CF 00 CF 00 CF 00 CF P/L CF P/L CF P/L

Cash 900 300 -1200 1400 1

Original Beg 1200 -200 1


value

Acq 0

Ret -1200 200 -

Trf 0

Valuation Beg -120 -580 -


Allow.

Acq 0

Ret 120 580 7

Trf 0

Interunit -400 400 -400 400 800 -800 0


Elimination

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Item TT A B C A B C T

CF 00 CF 00 CF 00 CF P/L CF P/L CF P/L

Retained -900 -300 120 400 400 -20 -


Earnings,
Prior Year

Retained 0 0 0 0 0 0 -320 0 -400 0 -400 0 20 -


Earnings

Revenue -1400 -
from Sale of
Asset

Depreciation 80 20 1

Cost of 1080 -400 -480 2


Goods Sold

Transfers to 0 0 0 0 0 320 0 400 0 400 0 -20 1


Retained
Earnings

Total 0 0 0 0 0 0 0 0 0 0 0 0 0

Self-Constructed Assets
Use
If a consolidation unit manufactures a noncurrent asset itself and sells it to another consolidation unit within the same
consolidation group, from that group’s point of view the transaction needs to be recorded as if the asset was manufactured and
then capitalized as an asset on the balance sheet.

Features
The sales revenue of the seller needs to be reclassi ed for the amount of the production cost. (The sales revenue is typically
reclassi ed to Other Capitalized Goods On Own Account .) Any incurred interunit pro t needs to be eliminated. The offsetting
entry is posted to the buyer.

The interunit pro t is calculated as follows:

IU pro t = original cost buyer – production cost seller – incidental costs seller – incidental costs buyer

The production cost and the offsetting credit entry are recorded at the manufacturing consolidation unit.

The asset is capitalized and depreciated at the buyer.

The depreciations regarding the eliminated IU pro t are corrected at the buyer. For self-constructed assets, the system always
uses the depreciation parameters of the buyer.

For the buyer, the asset is ultimately disclosed with the production costs less accumulated depreciation.

See also: Example: Self-Constructed Assets

Activities
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When manually entering an asset transfer, you choose Self-constructed Asset for the type of asset transfer.

Note
The asset number for a self-constructed asset cannot be entered for the seller. This is only possible later on at the buyer.

Example: Self-Constructed Assets


This example uses the following initial data:

Consolidation Unit A Consolidation Unit B (Buyer)


(Manufacturer and Seller)

Cost of goods sold 500 Original value (acquisition cost) 900

Beginning book value 900

Ordinary depreciation 180

Ending book value 720

The interunit pro t is calculated as follows:

Interunit pro t = 900 – 500 = 400

The system posts the following elimination entries:

The sales revenue of A needs to be reclassi ed to Other Capitalized Goods on Own Account for the amount the cost of
goods sold (500 currency units).

The cost of goods sold and the offsetting credit entry are recorded at the manufacturing consolidation unit.

The interunit pro t/loss of 400 needs to be eliminated. The offsetting entry is posted at consolidation unit B.

The asset is capitalized and depreciated at consolidation unit B.

The postings in the following table do not take depreciations into account.

Item TType A B APro t/Loss BPro t/Loss Total

Cash 900 -900 0

Original Value Beg 0

Acq 900 -400 500

Ret 0

Trf 0

Valuation Beg 0
Allowances

Acq 0

Ret 0

Trf 0

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Item TType A B APro t/Loss BPro t/Loss Total

Retained -500 -500


Earnings, Prior
Year

Interunit -400 400 0


Elimination

Retained -400 0 900 0 500


Earnings

Other Revenue -900 900 0

Cost of Goods 500 500


Sold

Other -500 -500


Capitalized
Goodson Own
Account

Transfers to 400 0 -900 0 -500


Retained
Earnings

Total 0 0 0 0 0

Sale of Asset to Third Party


Use
After one or more transfers of an asset within a consolidation group, sometimes that asset is sold to a third party that does not
belong to the consolidation group. (This is referred to as a sale to third party. ) When an asset is sold to a third party, all
interunit pro ts (or losses) incurred in the supply chain, as well as the pro t made by the last seller of the consolidation unit, are
realized.

Features
Since sales to third parties realize all interunit pro ts, for each transfer in the supply chain the system reverses the elimination
entries of those interunit pro ts and the sum of all depreciation adjustments, so that the original postings of the individual
nancial statements again take effect. All reversal entries are posted in the same document.

The system recognizes a sale to a third party if any of the following conditions are true:

The purchasing consolidation unit (buyer) does not belong to the consolidation group.

The sale is explicitly marked in the additional nancial data as a sale to third party.

The system is able to completely reverse the elimination and adjustment entries only if the data has no gaps in the supply chain.

Activities
You need to select the Sale to Third Party option for the type of asset transfer during the manual entry of asset transfers. This
enables the system to recognize the sale to third party and retrace the supply chain.

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Additional Financial Data and Master Data


De nition
Information the system requires to be able to eliminate interunit pro ts and losses in transferred assets and to adjust the
related depreciation charges (in addition to the totals data, which contains balance sheet, income statement, and similar data).

This is the data about the purchase and sale of an asset and the asset’s transfer.

Structure
Data About Asset Transfers

Type of asset transfer (transfer, self-constructed asset, or sale to third party)

Settings for valuation allowances (whether to use the settings of the seller or the buyer)

Production costs (for self-constructed assets only)

Sales revenue

Incidental acquisition costs

Data About Assets Sold

Master data:

Consolidation unit(s)

Asset (for example, asset number, asset subnumber)

Type of asset/liability

Year and period of depreciation start

Retirement year and period

Year and period of capitalization

Depreciable (useful) life in years and periods

Method, percentage rate, and base value of depreciation

Scrap value as an amount or percentage rate (if applicable)

Original cost items

Valuation allowance items

Additional nancial data:

Retirement at beginning of period (indicator)

Original value (acquisition cost)

Retirement of original cost, prior periods

Beginning book value

Ordinary depreciation
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Extraordinary depreciation (including writedowns)

Writeup

Retirement of original cost, current period

Retirement of valuation allowance

Ending book value

Data About Assets Bought

Master data:

Consolidation unit(s)

Asset (for example, asset number, asset subnumber)

Type of asset/liability

Year and period of depreciation start

Retirement year and period

Year and period of capitalization

Depreciable (useful) life in years and periods

Method, percentage rate, and base value of depreciation

Scrap value as an amount or percentage rate (if applicable)

Original cost items

Valuation allowance items

Additional nancial data

Retirement at beginning of period (indicator)

Original value (acquisition cost)

Retirement of original cost, prior periods

Beginning book value

Ordinary depreciation

Extraordinary depreciation (including writedowns)

Writeup

Retirement of original cost, current period

Retirement of valuation allowance

Ending book value

Integration
To record the additional nancial data, you use manual data entry or automatic methods of data collection ( exible upload, load
from data stream, copy, or delete).

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Example: Master Data and Additional


Financial Data of the Asset
The following table shows which master data and additional nancial data belongs to the example :

Master Data and Additional Financial Data of the Asset

Seller Buyer

Consolidation unit A Consolidation unit B

Noncurrent asset X Noncurrent asset Y

Master Data Master Data

Type of Asset/Liability Plant and Equipment Type of Asset/Liability Plant and Equipment

Start of depreciation 001/2000 Start of depreciation 001/2005

Capitalization 001/2000 Capitalization 001/2005

Retirement year and period 001/2005 Retirement year and period 999/9999

Depreciation method Straight-line over Remaining Life Depreciation method Straight-line over Remaining
Life

Useful life 10 years Useful life 5 years

Additional Financial Data Additional Financial Data

Retirement at beginning of Yes Retirement at beginning of No


period period

Original value 1000 Original value 900

Beginning book value 500 Beginning book value 900

Ordinary depreciation 0 Ordinary depreciation 180

Retirement, original cost 1000 Retirement, original cost 0

Retirement, depreciation 500 Retirement, depreciation 0

Ending book value 0 Ending book value 720

Master Data and Additional Financial Data for the Asset Transfer

Seller Buyer

Consolidation unit A Consolidation unit B

Noncurrent asset X Noncurrent asset Y

Revenue 900

Customizing for Elimination of IU P/L in


Transferred Assets
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Purpose
You use this process to de ne your Customizing settings for the elimination of interunit pro t/loss in transferred assets.

Prerequisites
You have de ned the Customizing settings for the data basis .

You have speci ed which InfoObjects are to be used for noncurrent assets at Assets/Liabilities on the Data Model tab page.
(For more information, see Data Model: Assets/Liabilities as well as the corresponding eld helps.)

You have set up the data streams Noncurrent Assets Noncurrent Assets – Consolidated, and Transfer of Noncurrent Assets on
the Data Streams tab page.

If applicable, you have selected additional subassignments and custom elds on the Data Stream Fields tab page.

You have de ned the Customizing settings for the consolidation area . In Settings, you have selected the indicator for
elimination of interunit pro t/loss in transferred assets under Consolidation Functions Used

You use at least one period initialization task to calculate proposed values for depreciation in each new period. (See Elimination
Logic .)

You have created a data collection task that will collect data about the noncurrent assets and their transfers.

You have de ned the Customizing settings for the preceding tasks, whose postings have posting levels that are less than or
equal to 20.

Process Flow
Types of Assets/Liabilities (ALTYPE)

For each type of asset/liability (such as buildings, plant and equipment, or vehicles), you specify which items are to be
posted.You do this in the process view of the Consolidation Workbench at Consolidation Functions → Elimination of IU
Pro t/Loss in Transferred Assets → Type of Assets/Liabilities

To create a type of asset/liability, go to Elimination of IU Pro t/Loss in Transferred Assets and chooseType of Assets/Liabilities
; then, in the bottom left area of the workbench screen, call up the context menu and choose Create

Assign a name for the type of asset/liability (for example, “Plant and Equipment”).

Specify the debit/credit sign (“+” for assets, “–“ for liabilities) on the General tab page.

On the Items for Original Cost tab page, specify the following items and transaction types (where applicable):

Acquisitions and retirements

Transfers

Interunit pro ts/losses from asset transfers (income statement item)

Source item and target item (income statement items) for the reclassi cation of sales revenue from transfers of self-
constructed noncurrent assets

Incidental costs of the seller (income statement item)

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You also can specify the items and transaction types for acquisitions and retirements, or for transfers, in the master record of
the asset.

On the Items for Valuation Allowances tab page, specify the following items and transaction types (where applicable):

Acquisitions and retirements (balance sheet items)

Transfers (balance sheet items)

Depreciation and writeups (income statement items)

You also can specify these items and transaction types in the master record of the asset.

Save your entries.

The Asset (Asset Subnumber)

Specify the following on the General tab page:

The type of asset/liability the asset belongs to (for example, “Plant and Equipment”)

The parameters for valuation allowances (such as the start of depreciation, the method, and so on)

Settings for the scrap value (if applicable)

If you have not already made such settings in the asset master record, specify on the Items for Original Cost tab page the items
and subassignments for acquisitions, retirements, and transfers.

If you have not already made such settings in the asset master record, specify on the Items for Valuation Allowances tab page
the items (and any applicable subassignments) for valuation allowances (for acquisitions, retirements, transfers, depreciation,
and writeups).

Save your settings.

Doc. Type

Create a document type for the elimination of interunit pro t/loss in transferred assets. Such a document type must have the
following properties:

Posting level 30 (consolidation group-dependent entries)

Error if balance not equal to zero

Used for elimination of interunit pro t/loss in transferred assets

Automatic posting

No automatic inversion

Posting in group currency only

Task

Create a task for the elimination of interunit pro t/loss in transferred assets. (The task hierarchy can have only one task of this
category.)

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Assign a name to the task.

Specify the consolidation frequency.

Assign a document type.

Under Global Settings , specify the following:

Whether to post the offsetting entry for the interunit pro t to the acquiring consolidation unit

When transferring the asset, whether to transfer the remaining book values from the seller to the buyer

Specify your preferences for the task log .

Save your entries.

Result
You can list the customizing settings by choosing List Settings

You can execute the data collection task for eliminating interunit pro t/loss in transferred assets.

Scenarios for Entering Master Data and


Additional Financial Data
You can decide whether data for the elimination of interunit pro t/loss in transferred assets is collected automatically or
entered manually, and whether you do this as the seller or the buyer.

You also need to decide whether the seller and the buyer enter the data as a collaborative effort or individually.

Automatic Data Collection or Manual Data Entry


De ne the strategy for collecting the data. The following approaches are available for collecting the master data and the
additional nancial data:

Scenario A: Automatic Data Collection

You can choose one of the following methods for automatic data collection: exible upload, load from data stream, copy, and
delete. However, the methods copy and delete cannot be used for collecting master data.

1. You load the asset master data.

2. You load the additional nancial data for the asset.

3. You load the additional nancial data for the asset transfer.

4. You may need to run asset matching.

See also:

Automatic Data Collection

Matching Noncurrent Assets

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Scenario B: Manual Data Collection, Step by Step

1. You manually enter the asset master data.

2. You manually enter the additional nancial data for the asset.

3. You manually enter the additional nancial data for the asset transfer.

4. You may need to run asset matching.

See also:

Entering Asset Transfers with regards to entering master data and additional nancial data for asset transfers

Matching Noncurrent Assets

Scenario C: Combined Manual Data Entry

1. You manually enter asset master data, additional nancial data for the asset, and additional nancial data for the asset
transfer in a single step.

2. You may need to run asset matching.

See also:

Entering Asset Transfers with regards to entering master data and additional nancial data for asset transfers

Matching Noncurrent Assets

Collaborative Data Collection on Behalf of the Seller and the Buyer


Different scenarios are possible depending on if and how the seller and the buyer work together in entering the data.

Scenario 1: The seller enters the data rst and the buyer completes the data

First, the seller enters the master data and the additional nancial data for the asset and its transfer. Then, the buyer
supplements the data.

Scenario 2: The seller enters all necessary data

The seller has knowledge about all master data and additional nancial data, and enters all of it.

Scenario 3: The seller and the buyer enter the additional nancial data independently; assets are matched afterwards

The seller and the buyer enter the master data and the additional nancial data independently from each other (for example,
using exible upload). This produces two incomplete data records for the same asset transfer. However, there is no link between
these two records in the system.

 Example
Seller point of view: Seller A sells asset “X-123” to buyer B for 900 currency units, but does not know how buyer B has labeled
the asset.

Buyer point of view: Buyer B purchases asset “Y-456” from seller A, but does not know how seller A labeled the asset.

In this case, either the seller or the buyer needs to run asset matching .

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Legacy Data Transfer


Use
You can use this function to copy the data for elimination of interunit pro t/loss in transferred assets from a legacy system and
transfer the following cumulative values into the new system without an effect on earnings:

Elimination of interunit pro t/loss from prior periods

Depreciation adjustments from prior periods

Features
Customizing for Legacy Data Transfer

If you want to transfer the data for elimination of interunit pro t/loss in transferred assets from a legacy system, you need to
specify the following data in Customizing for legacy data transfer:

Fiscal year and period in which you want to transfer the legacy data

Balance sheet item and transaction type for posting the legacy data transfer without an effecting on earnings

Executing the Legacy Data Transfer

In the legacy data transfer period, you enter the value of the accumulated depreciation from the legacy system in the
Impairment Charge (extraordinary amortization) eld in the additional nancial data for the Noncurrent Assets data stream.

In the period you have speci ed in Customizing, the system applies a special logic to this value. The system posts the
elimination of interunit pro t/loss and depreciation adjustments (that result from the extraordinary amortization) without
affecting earnings to the item and transaction type speci ed in Customizing.

Activities
To con gure the Customizing settings for legacy data transfer, in the process view of the consolidation workbench, choose
Consolidation Functions Elimination of IU Pro t/Loss in Transferred Assets Legacy Data Transfer .

Consolidation of Investments
Purpose
You can use this component to eliminate the equity relationships of the consolidations units included in the consolidation group.

Integration
Before you consolidate investments, you need to do the following:

Perform Customizing for the master data (organizational units, chart of accounts, and so on)

Enter the reported nancial data

Enter the additional nancial data

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Standardize entries

Perform the currency translation

Validate standardized nancial data as required

You can choose to use the capitalization and valuation allowances function to map the capitalization and amortization of fair
value surpluses. The consolidation of investments takes the results of this function into account.

Key Features
During the consolidation of investments, the investments of the parent company (investor unit) are eliminated with the
proportionate equity of the subsidiary (investee unit).

You have the following accounting techniques available:

Purchase method

Equity method

Mutual stock method

The system supports the following activities:

First consolidation

Subsequent consolidation

Distribution of dividends

Amortization of goodwill

Goodwill currency translation (for goodwill in local currency)

Increase in capitalization

Reduction in capitalization

Step acquisition

Partial divestiture

Total divestiture

Capitalization of manual goodwill

Partial transfer

Total transfer

Investment writeup

Investment amortization

Increase in indirect investment

Reduction in indirect investment

Indirect transfer

Method change

The following are available as additional functions:


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Legacy data transfer

Negative stockholders' equity

Organizational change

Postings of appropriations of retained earnings

The system can use the totals database and/or the additional nancial data as the data source for the data on investment,
equity, and equity holdings adjustments. You can enter goodwill data as additional nancial data.

Constraints
The accounting technique Cost Method is not yet available.

You can use the reclassi cation function to perform Proportionate Consolidation in the system. For more information, see
Proportionate Consolidation.

The activities Increase in Capitalization and Reduction in Capitalization are restricted to increasing or unchanged percentages
of ownership.

The following activities and functionalities are not currently supported: Liquidation, reclassi cation of treasury stock, horizontal
and vertical mergers, push-down method, investor units not consolidated with the purchase method or the mutual stock
method.

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