In SAP Consolidations, the "Consolidation of Investments" (COI) process is used to eliminate intercompany ownership relationships within a corporate group structure to ensure that financial statements reflect the financial health of the consolidated entity, rather than individual company accounts. This process typically includes:
Investment Elimination: Intercompany investments are removed from the balance sheet, ensuring that ownership stakes in subsidiaries are not double-counted. For example, if Company A owns 100% of Company B, the investment recorded by A is eliminated against B's equity.
Goodwill Calculation and Amortization: When the acquisition cost exceeds the fair value of net assets acquired, the difference is recorded as goodwill. Goodwill is then amortized or tested for impairment based on the applicable accounting standards.
Intercompany Debt Elimination: Any intercompany receivables and payables are eliminated, ensuring that debts and receivables between companies in the group are not reflected in the consolidated balance sheet.
Profit and Loss Elimination: Intercompany profit or loss from sales between entities within the group is eliminated to prevent overstatement. This involves removing unrealized profits from the consolidated financials if goods or services are not yet sold outside the group.
Minority Interest: In cases where a parent company does not own 100% of a subsidiary, a minority interest is recognized in the consolidated statements, reflecting the portion of net assets and net income not owned by the parent company.
In your setup, with a seven-level structure where each level has 100% ownership of its subsidiaries, these COI steps ensure that only the consolidated, overall financial health of the entire structure (from A down to the lowest level, e.g., L, M, N) is shown without duplicating investments or intra-group transactions.
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