Deconsolidation

Table of Contents

• 1 General
• 2 Conditions
• 3 Deconsolidation Process
• 3.1 Elimination of Individual Financial Statement Data
• 3.2 Elimination of Capital Consolidation
• 3.3 Elimination of Other Consolidation Postings
• 4 Influence on Other Consolidation Functions
• 5 Carry Forward into the Following Period
• 6 Individual Financial Statement Data for Intra-Year Financial Statements
• 6.1 Currency Conversion with a Different Closing Rate
• 6.2 Copy EA Data for Deconsolidified Company
• 7 Non-Liquid Disposal
• 8 Partial Retirement
• 9 Tips & Tricks

1 General

If a subsidiary is not included in the scope of consolidated companies, a deconsolidation must be made. It is not possible to simply disappear from the scope of consolidated companies. As the assets and liabilities of the retiring subsidiary are part of the current year’s opening balance sheet, their disposal in the current year is to be presented broken down by individual balance sheet item.

To determine the sales success in the company financial statement, the sales price is compared with the book value of the participation sold. From the Group perspective, on the other hand, the book value of the disposed assets and liabilities is compared with the sales price.

It follows from this that the sales success of the participation in company financial statement is usually different from the sales success of the group. Differences arise for example from the previous affecting net result offsetting of the original difference amount from the Capital consolidation and from amortization current year to the book value of the participation in the company financial statement, which are not compared with a corresponding expense offset in the group financial statement.

This documentation describes the steps and processing required in IDL Konsis to perform a deconsolidation.

2 Conditions

A separate consolidation parameters for consolidation function XK must be created for the deconsolidation. A GUV account for the result from deconsolidation must be provided here. Separate accounts for the disposal of equity companies and minority interests can be deposited if desired. It is also possible to specify a separate profit carried forward account.

A complete company financial statement must be available if a full write-off including write-offs of the individual end-of-contract data is to be carried out automatically in IDL Konsis. If the disposal is made on 1 January of a fiscal year and there are actually no financial statements, at least the previous year’s account balances must be copied with the adjustment of the retained earnings.

The disposal of the company is to be filed in the shareholding of the parent company with the posting key with usage tag B03 under the indication of a value and a percentage. The value by which the sales proceeds generated exceeded the book value must be entered in the "Additional revenue GC" field, if applicable, and the group account in which this revenue was posted in the "Additional revenue account" field.

In the case of a full write-off, the same movement date as in shareholdings must also be entered in the Corporate field Monitor in the Departure date. After participation and status has been determined, the investment processes / investment book value are 0.00 and a red state indicates that a deconsolidation must also be carried out.

If Transaction developments are used in the IDL Konsis, posting keys with usage tags F for disposal consolidation group are required for the write-offs of these Transaction developments. For the write-off of profit carried forward accounts with the license plate number C, posting keys with the usage tag XKS are also required. These should be created before the consolidation function starts.

3 Deconsolidation Process

The deconsolidation will be launched in the corporate group monitor via the deconsolidation/upstream merger -> deconsolidation campaign. The following vouchers may arise in this context:

1. XK voucher: Eliminates own portion of individual financial statement data and all vouchers of Capital consolidation
2. XE voucher: Eliminates the capital consolidation vouchers of equity companies
3. XF voucher: Eliminates the external portion of individual financial statement data and all vouchers of calculating the external share
4. XA voucher: Eliminates vouchers of expense and income consolidation
5. XM voucher: Eliminates all manual consolidation documents
6. XD voucher: Eliminates all consolidation vouchers from consolidation of debits and credits for dividends
7. XT voucher: Eliminates all consolidation vouchers from elimination of interim profit in fixed assets
8. XZ voucher: Eliminates all consolidation vouchers from current assets elimination of interim profit

3.1 Elimination of Individual Financial Statement Data

All balance sheet accounts are taken into account when eliminating the partial individual financial statement data. If transactions are kept in the current settlement period and facts, these are used, otherwise the account balances are used. Balance sheet accounts are accounts with the balance sheet/income statement indicators 1,2,6 or 7. The postings are made under the carrying amount number 00, in the XK voucher for the own share and in the XF voucher for the third-party share. To eliminate treasury share, the individual financial statement data is multiplied by the percentage of equity held by the Parent prior to the disposal date. The balances to be eliminated for the third-party share are from the remaining investment processes that have not yet been derecognized at the deconsolidation of the own share.

The following are not included as balance sheet accounts:

• The annual profit account (account indicator 1=E)
• All income carry-forward accounts with account number X or C

The posting key "disposal group companies" (usage tag "F") is used for the statement accounts, with elimination taking place differently depending on the type of Transaction development:

• For Transaction developments with a carry forward (there is a BSL with usage tag 'V' but no with 'SV') the BSL 'disposal consolidation group' (usage tag 'F') is used, differentiated if necessary by transaction development areas e.g. AHK and AfA. Every single transaction is eliminated.
• For Transaction developments without carry forward (there is no BSL with usage tag 'V') the same posting key is used with which the company development transactions were entered in the SPIBEW application. Every single transaction is eliminated.
• For Transaction developments with sample accounting (there are BSL with usage tags 'V' and 'SV') the transactions with BSL without usage tag and with usage tag 'U' are eliminated like Transaction developments without carry forward, i.e. with the reference posting key for the company financial statement. In addition, the transactions are eliminated with a BSL with usage tags such as Transaction developments with carry forward, in other words with the BSL with usage tag 'F' and canceled with usage tag 'SF'.

Group investment objects with the name 'XK' + account number are generated for asset accounts. All fixed asset objects raised in the XK voucher will receive a valid-to date and a sales date from the exit of the fiscal year.

Balances on accounts with the license plate number C are first reposted to the account with the license plate number X as the leading results carry-forward account and only in a second step are reposted to the account "Result from deconsolidation" according to KTKPAR XK. A separate reposting key with the usage tag XKS is used for the transfer from C to X account, which must be created if necessary.

The result of the posting lines, i.e. the open difference of the posting record, is posted to the "Result from deconsolidation" account from the consolidation parameters at the subsidiary. Postings on statistical accounts are excluded from this.

3.2 Elimination of Capital Consolidation

Elimination of co-financing

All initial and subsequent deconsolidation vouchers with two companies are processed in the voucher number for consolidation functions KK 00 - 09, KN, EK 00 to 09, EN and KK V and EK V. All balance sheet accounts with balance sheet/income statement number 1,2,6 or 7 are eliminated. This does not include the annual profit account (account indicator 1 = E), all profit carried forward accounts and the account "Elimination of net income for the year" from the consolidation parameters KK. The BSL with the usage tag "F= disposal group companies" is used as the posting key, and the group reference key from BSL B03 = exit from the investment account is used as the corporate reference key. The difference between all postings is posted to the "Result from deconsolidation" account from the XK parameter. If information about additional earnings has been provided for the disposition movement in shareholdings, the amount from the account shown here is also reposted to "Result from deconsolidation" for the subsidiary. All postings are made in the 01 record number of the XK voucher.

Eliminate minority interests

The deconsolidation of the external share postings is made on an XF voucher. All third-party share consolidation postings with one or two companies are processed in the voucher number and with the consolidation functions FK, FF, FK V and KG. All balance sheet accounts are eliminated (for definitions and exceptions, see above).

3.3 Elimination of Other Consolidation Postings

All consolidation vouchers with the consolidation functions AE, MB, TA, SD, and ZU are taken into account, unless they have the voucher type WX.

Elimination is carried out on an XA / XM / XT / XD / XZ voucher with the subsidiary and parent company in the voucher number. All balance sheet accounts are eliminated, whereby the BSL with the usage tag F = disposal group companies is used as the posting key. Consolidation postings on profit carried forward accounts are posted to the "Result from deconsolidation" account from the respective consolidation parameters.

4 Influence on Other Consolidation Functions

The elimination of interim profit in both current and fixed assets is not permitted if one of the two participating companies leaves the group companies. The application stops with an appropriate error message.

In the consolidation of debits and credits, both outgoing companies, for which a departure date is maintained in the group monitor, as well as the IC companies, which have reported IC balances against them, are excluded from the consolidation of debits and credits. However, there is also the possibility for these IC companies to have reported IC balances reposted to another account in order to bring the IC accounts back to zero.

A quote reference account can be stored in the account master data in the KTO application for each IC account. This account, which is actually intended for the consolidation of debits and credits of quota companies, is also used here: If an IC company reports an IC balance to an outgoing company on an account that has a quota reference account, the consolidation of debits and credits is performed and the balance is reposted to the quota reference account by the IC account.

Example:

• Company 007 leaves the group companies, company 003 remains in group companies
• Company 003 posted a receivable at account 25010 against company 007 in the amount of EUR 500.00 in the debit
• Company 003 posted a receivable on account 26040 against company 007 in the amount of 300.00 euros in the debit
• Company 007 has on account 46010 a liability against company 003 in the amount of 780.00 euros in credit

• For the 25010 account, a quota reference account 25099 is given in the account master data.
• For account 26040, no quota reference account is specified in the account master data.

A voucher '003 007 SK' is generated. This voucher contains no postings for company 007, but only two postings for company 003:

No postings will be created for the other IC balances reported by company 003 for IC-company 007 as no quota reference account is specified for account 26040.

At the SC development reposting, transactions for outgoing companies and their partner companies will also be dealt with separately so that the resulting vouchers match the changed consolidation of debits and credits.

For the outgoing company, the transactions from the company financial statement are first eliminated as before with the respective reference posting key. However, because there is no offsetting entry from the consolidation of debits and credits, additional new postings are generated depending on the Transaction development used:

Transaction development with carry forward (with 'V' BSL)

The offsetting entry is made with the BSL with usage tag 'F'

Transaction development without carry forward

The offsetting entry is made with the same BSL as the elimination of EA transactions

Automatically calculating Transaction development (with 'L' BSL but without 'SL' BSL)

The offsetting entry is made with the BSL with usage tag 'F'

Transaction development with sample accounting (with L-BSL and SL-BSL)

The offsetting entry is made 1st with the same BSL as the elimination of EA transactions and 2nd with the BSL with usage tag 'F' and, inversely, with the 'SF' BSL.

The postings with the remaining company are generated in the same way as described above, provided that no quota reference account is assigned to the IC accounts.

If a quota reference account is assigned to an IC account, the SK development reposting for the IC account will work as before, i.e. as if the IC company would not be lost. For the quota reference account itself, the postings are made as described above depending on the Transaction development, but with the reverse debit/credit indicator, because this posting does not eliminate anything, but instead aims to reflect a newly posted balance in a mirror-appropriate manner.

The expense/income consolidation, on the other hand, is carried out normally in the case that the company leaves the group within the year and therefore P+L balances are still available.

5 Carry Forward into the Following Period

With the group carry forward, the deconsolidated company is set to consolidation method 'K' in the group monitor, so that the company financial statement of this company is no longer included in the group financial statement. Nevertheless, the effectiveness of the result for both the company financial statement and the consolidation postings for the year of disposal must be presented as a transfer from the profit and loss account to the profit and loss carry forward account. The following supporting documents may arise for the company issued:

Carry forward of the company financial statement

From the account balances of the disposal period, the profit carried forward accounts, the annual results account (E-account) and all capital accounts with the option "Reposting on carry forward" are determined and carried forward in the following year on a K_V voucher with a company number in the voucher header. The carry forward is made on the E-account with the subsequent transfer to the profit carried forward account from the respective consolidation parameters.

Carry forward of the group financial statement

The vouchers with the consolidation functions XK and KK V will be presented for a new KK V voucher. The vouchers with the processes FK, FF, FK V and XF will be turned into a new FK V voucher.

The consolidation vouchers are used to calculate the P+L accounts, profit carried forward accounts and all capital accounts with the option "Reposting on carry forward" and they are carried forward to the annual results account (account indicator = E or G). The transfer is then made to the profit carried forward account of the respective consolidation parameters.

To ensure that the individual posting documents are debited and credited, the difference amounts are posted to the suspense account of the KK parameter. However, this account should be set to zero for all individual vouchers.

6 Individual Financial Statement Data for Intra-Year Financial Statements

As described in Section 2, Prerequisites, it is necessary for the correct deconsolidation that individual financial statements data are available. In cases where a company is issued at the beginning of the year and monthly or quarterly financial statements are carried out in IDL Konsis, this means that these individual financial statement data must be available in each period. In the case of foreign currency companies in particular, there is also the problem that the individual financial statement data must always be converted at the same exchange rate as at the date of issue, while the financial statements of other companies of the same currency are to be converted at the current closing rate.

IDL Konsis offers two program solutions for this problem:

6.1 Currency Conversion with a Different Closing Rate

A different, special cut-off date can be saved in the WUM application. Example: in group financial statement 03/20XX the deconsolidation of company A is to be shown for the first time. The date of departure for this company is 31 January of the same year. In order to calculate the correct deconsolidation result, a currency conversion is to be carried out at the rate of 31 January, even if no January accounts are carried out. For this purpose, exchange rates are converted into currency exchange rates on 31 January. On the other hand, this date is entered in the outgoing company's "Different exchange rate cut-off date" (WUM) parameter. This entry ensures that the rates from 31 January are used in the 03/20XX financial statements and not the rates from 31 March 2013. This does not affect the currency conversions of other companies with the same currency.

6.2 Copy EA Data for Deconsolidified Company

The report data once filed in the company financial statement in the first retirement period forms the basis for the deconsolidation. They are not changed during the course of a financial year, as long as no errors are corrected. However, when monthly or quarterly financial statements are prepared, they must be available in all financial statements for the current fiscal year.

The function "Copy EA data for deconsolidated company" is available in the Group monitor (KTKGES) for this purpose. It is located in the context menu under -> deconsolidation. Copying includes all individual financial statement data, i.e. account balances, IC balances, controlling balances, development transactions, IC fixed asset transactions, IC inventories, vouchers and postings, WUM parameters, account and BSL conversion rule. Group and parallel currency values are also copied, as well as conversion information, so that no currency conversion is required. Any data that already exists in the target period will be deleted in advance. Finally, the company financial statement is blocked.

Since the function is called from within the group monitor, it is only possible on one fact, which is also consolidated. However, it is possible to specify a different fact as the source. The function can only be performed if the stated previous period is not an annual financial statement period.

7 Non-Liquid Disposal

If a company is no longer to be consolidated in the group companies without a sale having taken place, there is no transaction in shareholdings that could trigger a deconsolidation. In addition, effects from this deconsolidation, in particular in the cash flow statement, must be presented differently than if the company were sold. The ‘non-liquid disposal’ can be used for these cases.

A consolidation parameters with the consolidation method YK must be created for the non-liquid disposal. The fields are the same as for the consolidation parameters for deconsolidation XK.

For the derecognition of development transactions, posting keys with the usage tag NF = non-liquid disposal are to be created for each Transaction development and transaction development area.

Unlike "real" deconsolidation, no shareholding transaction is necessary. A retirement date must be entered in KTKGES and the option NLA = non-liquid disposal must also be selected in the "Change consolidation" field. These settings already cause the YK states to turn red after status determination has been performed.

The company financial statement sub-areas and the individual consolidation vouchers are processed analogously to the "real" deconsolidation, only in deviation with the consolidation function YK. Carry forward into the new period is also done with the same rules.

8 Partial Retirement

If only part of the share in a company is transferred and the company remains in the group, only in the shareholding of GESGES is there a retirement movement with the parent company to be maintained. In KTKGES no retirement date has to be entered in this case.

This partial exit does not cause deconsolidation by the XK, the XK state does not turn red. Instead, a first consolidation KK must be performed in this case, virtually a negative first consolidation of the treasury shares and a corresponding change in the minority interests (FK). This first consolidation always takes into account the proportionate equity as it appears on the current reporting date. If the proportionate capital is to be taken into account in accordance with the first consolidation carried forward, the values must be adjusted manually in the first consolidation form entry.

The partial disposal function can also be used, inter alia, if one company is sold in one period from one sub-group to another and only the parent company changes. In such a situation, it is important that the movement date of the output movement is the same as that of the access movement. For sales within a group, the "internal sales" function can be used as an alternative (GUIDE Intercompany Purchase).

9 Tips & Tricks

A Parent shall leave the group

If a parent company leaves the group companies, a deconsolidation must also be carried out for its subsidiaries. The problem here is that from the perspective of the parent companies, the participations do not sell out to the subsidiaries at all, but a retirement movement is necessary for carrying out the deconsolidation in shareholdings. Trick: For the parent company, a retirement movement with a BSL with usage tag B03 must be entered, in which the percentages are written off but a 0.00 is entered in the local currency field. Importantly, if the movement date of this shareholding transaction is the same as the departure date in KTKGES, then the subsidiary will also be completely deconsolidated.

A quota society leaves the group

In order for the individual financial statement data, which is also maintained at 100% for a quoted company, to be quoted in the consolidated report, a percentage must be included in the KTKGES group companies. This is usually calculated from the shareholding transactions in GESGES. However, if the company leaves the group, they are missing and the percentage is 0.00. In this case, in KTKGES the company must also maintain the participation ratio with which the company has been included in the group so far in addition to the retirement date.

How long must the company be valid?

In the year of the disposal, affecting net result vouchers are still being carried forward into the new period, in particular to present Transaction developments correctly. Therefore, the company must still be valid at least until the exit of the fiscal year of the subsequent period.

Why are retained earnings not derecognized?

In principle, the group also applies: The balance sheet profit of the previous period results in the retained earnings of the current period. All company financial statements and consolidation postings contribute to this. If retained earnings of a departing company were simply written off like the rest of the capital, it might not work. Instead, the "Result" account from the XK or YK consolidation parameters is used for all balances and postings on accounts with the account indicator C or X.

How can you check whether the deconsolidation was successful?

The KONSAL application, which can be called up from within the group monitor and which displays the balances including the consolidation postings immediately after the deconsolidation has been completed, offers a good starting point. Once the deconsolidation has been carried out, only balances on profit and loss accounts, profit and loss carry-forwards accounts and profit and loss accounts should remain.