Algorithm for the minorities calculation
Introduction¶
The minorities calculation is performed in different ways according to the conditions detailed below.
Net equity: final balances, entries for the period and P&L net result¶
For every entry specified above, CCH Tagetik writes off the portion pertaining to minorities from the group accounts and re-attributes it to the respective minority accounts. These are indicated in the minority rules in the Accounts section. The calculation considers the minority percentages for the period, adjusted with the same amount as the group accounts and minority accounts, but with the opposite sign.
Net equity: valuation of the variations following the changes in ownership percentages¶
The minorities calculated in the previous fiscal year are carried forward, so the financial statements before the minorities calculation already contains the minorities from the previous year, as carry forward amounts (origin PRCO_RESTORE_MIN). The minorities calculation algorithm considers those carry forward amounts for the appropriate adjustments due to any changes in the corporate structure and therefore as variations of the minority percentages. CCH Tagetik compares the minority percentages for the current year with those from the previous year and, if the minorities percentage increases or decreases, multiplies that difference by the amounts carried forward. It therefore increases or decreases the variations dedicated to the percentage changes both for the group accounts and for the minority accounts (setup of the relative Control Groups). The change in minorities is never the same for the group and for the minorities because a reduction in the minorities portion generally corresponds to an increase in the group portion and vice versa, and so the appropriate variation accounts are chosen from the control groups setup.
Setting to zero and creating minorities¶
A specific change in the minorities percentage is when those minorities are completely set to zero, or created for the first time. That is, one of the following two situations arises:
- The minorities change from x to zero and the owned entity is purchased in full by the group.
- The minorities are created for the first time and change from zero to x. This is the case when partial acquisitions are made or a 100%-owned company is sold.
In these cases CCH Tagetik uses the same logic to define the variations dedicated to the changes in the perimeter instead of the flows dedicated to the percentage changes.
Separate calculation of balances and entries for the year¶
The separate calculation for final balances and entries for the year and, on the other hand, the variations due to changes in the area, ensure that the minorities calculated on final balances are always correct and consistent with the percentages for the year. This prevents workflow setup or management errors which could have an effect, from the previous year, on the initial balances or amounts carried forward more generally. Any previous errors can have an effect on initial balances and on the variation adjustment calculations for the period, but not on final balances.
Example - Share Capital
It is useful to calculate an entity’s minorities considering not only the data of the entity itself but also the financial investment elimination.
The relationship directly and indirectly involves Entity B01 as follows:
- X00 owns 80% of B00
- B00 owns 70% of B01
For entity B01 the direct percentage is 70% and, on the group side, the equity ratio is 56% (80*70)%
The original amounts of entity B01 are detailed below:
| Description | Value |
|---|---|
| Share Capital | -403040 |
| Other Reserves | -169200 |
| Net result held | -439 |
| Net result held | -113000 |
| Balance sheet net result for the year | -198589 |
Minorities calculation¶
The following table shows the double entry adjustment: the original amounts are multiplied by (proportional % - equity ratio %). The formula for the Share Capital is:
-403,040*(100-56)%=177,338
| Description | Value |
|---|---|
| Share Capital | 177338 |
| Minorities Reserve | -177338 |
| Other reserves | 74448 |
| Minorities reserves | -74448 |
| Net result held | 49913 |
| Minorities reserves | -49913 |
| Balance sheet net result for the year | 87379 |
| Balance sheet minorities net result | -87379 |
| Minorities net result (Profit&Loss) | 87379 |
| Net result (Profit&Loss) | -87379 |
Financial investment elimination¶
The financial investment is eliminated on the original scenario as follows:
| description | Value |
|---|---|
| Financial investment | -300000 |
| Share Capital | 282128 |
| Other Reserves | 118440 |
| Net result held | -100568 |
The amount of the share capital comprising minorities is calculated as follows:
(282,128)*(1-0.80)= 56,426
where (1-0.80) is B00’s minorities percentage
| Description | Value |
|---|---|
| Share Capital | -56426 |
| Other Reserves | -23600 |
| Net result held | 20114 |
| Minorities reserves | -20114 |
| Minorities reserves | 23600 |
| Minorities reserves | 56426 |
The Share Capital is detailed below, considering all entries during the course of the entire consolidation process:
| Description | Value |
|---|---|
| Contribution on amounts (individual data items) | -403,040 |
| Minorities calculation on amounts | 177,338 |
| Financial investment elimination | 282,128 |
| Minorities calculation on financial investment elimination | -56,426 |
| Total | 0 |