Consolidation Methods in Group Reporting

In SAP Group Reporting, the Consolidation Method defines how different entities within a group are consolidated based on the share of ownership. Different methods are applied depending on the relationship between the parent and subsidiary entities, the percentage of control or influence, and specific business requirements. Here's a detailed guide on each consolidation method, including examples:

1. Parent (Direct Share) (00)

• Description: This method consolidates a subsidiary based on the direct ownership percentage that the parent company holds.
• Use Case: Used when the parent directly owns a certain percentage of the subsidiary.
• Example: If Company A owns 80% of Company B directly, only this 80% ownership will be considered in the consolidation entries. This method focuses strictly on direct share without aggregating any indirect ownership from sub-subsidiaries.

2. Parent (Group Share) (01)

• Description: Consolidation is performed using the group share or the percentage of ownership that the group as a whole has in a subsidiary, rather than only the parent company's direct share.
• Use Case: Used when ownership is assessed at the group level, especially when there are multiple layers of ownership within the group.
• Example: Suppose Company A owns 60% of Company B, and Company B owns 50% of Company C. The group share in Company C (for Company A) is 30% (60% * 50%), which is consolidated accordingly.

3. Purchase Method (Direct Share) (10)

• Description: This method applies to acquisitions and accounts for any goodwill or acquisition-related adjustments based on the parent's direct share of the subsidiary.
• Use Case: When a parent company directly acquires a portion of a subsidiary and needs to recognize goodwill in the local currency.
• Example: Company X acquires a 75% direct stake in Company Y. The purchase price paid over the book value creates goodwill, which is calculated based on the 75% ownership.

4. Purchase Method with Goodwill in Local Currency (Direct Share) (12)

• Description: Similar to the Purchase Method (Direct Share) but specifically designed to handle goodwill calculations in the subsidiary's local currency.
• Use Case: Useful in cases where currency impacts are significant, and goodwill should be recognized in the subsidiary's functional currency.
• Example: If Company M acquires an 80% direct interest in Company N (a foreign entity), goodwill is recorded in Company N's local currency, which might differ from Company M's currency.

5. Purchase Method (Group Share) (11)

• Description: This method is based on the group share ownership percentage, taking into account multiple layers of ownership.
• Use Case: When acquisition adjustments and goodwill need to reflect the entire group's ownership percentage in the subsidiary.
• Example: If Company A owns 60% of Company B and Company B owns 40% of Company C, then the group share for Company C is 24% (60% * 40%), and goodwill is calculated accordingly.

6. Equity Method (Direct Share) (20)

• Description: This method is typically applied for associates or joint ventures where the parent has significant influence but not full control, calculated by the direct share.
• Use Case: Common for associates where the parent owns 20-50% of voting power.
• Example: Company X has a 25% stake in Company Y and exerts significant influence. Under the equity method, Company X's share of Company Y's net income will be reported proportionately (25%) in its financial statements.

7. Equity Method (Group Share) (21)

• Description: Similar to Equity Method (Direct Share), but considers the group's total share in an associate or joint venture.
• Use Case: Applied when indirect ownership is also factored in to reflect group share rather than just direct investment.
• Example: If Company A owns 30% of Company B, and Company B holds 20% of Company C, the group share for Company C is 6% (30% * 20%) under the Equity Method (Group Share).

8. Equity Method with Goodwill in Local Currency (Direct Share) (22)

• Description: Applies the equity method based on the direct share and accounts for goodwill in the local currency of the associate or joint venture.
• Use Case: Used when the investment in an associate includes a premium over book value, and goodwill needs to be recorded in the associate's currency.
• Example: If Company Z has a 40% direct share in Company W, any premium paid by Company Z will create goodwill, which is then recorded in Company W's local currency.