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Investment Adjustment (Amortization/Writeup of Investments) in BCS

Oct 13, 2016 at 07:16 PM

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We have a COI mechanism posting question related to the activity of amortization of investments using the below illustration

Scenario:

Company A is the holding company (investor) of Company B (investee) at 100% shareholding with the underlying balance sheet and income statement items. There is an impairment of investment of 18,000 in the book’s of company B which will trigger the COI activity of Amortization of Investments

Company A – Balance Sheet

Bank -35000

Cost of investment in B 35000

Company B – Balance Sheet

Bank 50000

Cost of investment 35000

Impairment of investment -18000

Share capital -35000

Retained earnings-current -32000

Company B – Income Statement

Revenue -50000

Impairment charge 18000

Net income -32000

  1. COI posting level 30 entries: Activity: First Consolidation

Co A Cost of investment -35000

Co B Share capital 35000

  1. COI posting level 30 entries: Activity: Amortization of Investments

Cost of investment 18000

Impairment charge -18000

Retained earnings – current -18000

Bal. Adjustment – I/S 18000

Stats: Net Income stat a/c -18000

Stats: Net income a/c offset 18000

  1. Subsequent activity of B: USD32,000

When company B is divested, the ensuing COI activity divesture posting is generated:

Co A Investment cost 35000

Co B Share Capital -35000

Co B COI clearing -32000

Co B G/L on disposal 32000

Co B Retained Earnings – C/Y 32000

Co B Bal. Adjustment – I/S -32000

Key issues:

  1. During the COI entries of activity amortization of investments, the stats item of the adjusted net income is not updated
  2. Gain and loss on divestment calculated by the system is incorrect. It should recognizes a loss of USD50,000 instead of USD32,000 as the activity of amortization of investment did not account the posting of USD18,000 to the stat items of the adjusted net income”

Furthermore from the SAP Help (

http://help.sap.com/saphelp_sem60ep1/helpdata/en/80/fd7b4070ebd462e10000000a155106/content.htm?frameset=/en/53/1ad642dda9f440e10000000a1550b0/frameset.htm¤t_toc=/en/0d/3f5c3c3806af06e10000000a11402f/plain.htm&node_id=66&show_children=false ), it seemed to be a standard behaviour of the activity of investment impairment.

So manual adjustment would be required, but impairment is a frequent activity so the expectation is that this should be an automatic entry.

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