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Financial investment events: introduction

Background

To correctly manage financial investment events, the user must specify the process to which they are linked, or the event scenario in which to insert the specific events. The event scenario is a fictitious scenario which allows you to manage events by date. This allows you to define different financial investment scenarios depending on the data collection process This management is particularly useful in statutory situations in which ownership relations are very complex. On the contrary, in managerial areas , the ownership structure register is less important and included in a shortened form or not included at all.

Financial investment entry

The financial investment entry, namely its value, must be defined for every financial investment event. However, do not enter the total value of the financial investment entered in the financial statements in relation to the owned entity, but only the relative variance of the shareholding relationship when the event occurred. Thus, said value will not be loaded onto the normal financial investment accounts, but the variation accounts.

Event types

Every financial investment event entered in the ownership structure register is associated with an event type, i.e. information on the type of operation to which the event relates. Based on the event type, CCH Tagetik automatically generates the journals deriving from the elimination logic applied to eliminate the net equity from the ownership structure register and manage the Goodwill calculation within those journals.

In particular, in CCH Tagetik you can manage the following event types:

Direct ownership percentage

Indicates the percentage of the owned entity possessed by the owner entity (after the event). The ownership percentage will vary depending on the characteristics of the financial investment event.

Financial investment event Ownership percentage
Initial acquisition The ownership percentage held by the owner entity in the owned entity following the subscription of the financial investment
Purchase or sale of a share by minorities or to minorities New ownership percentage. This will be higher or lower than the percentage specified in the previous event.
Capital increase or decrease subscribed by the group Percentage specified in the previous event, since this event does not change the ownership percentage.
Financial investment revaluation or write-down Ownership percentage specified in the previous event.
Deconsolidation Ownership percentage equal to 0.
Merger (merged Owner entity) - initial consolidation Ownership percentage by which, in the new shareholding relationship, the merging entity (owner) possesses the child entities of the incorporated entity (owned entity).
Merger (merged owner entity) - deconsolidation Ownership percentage equal to 0.
Merger - Owned entity incorporated in owner entity Ownership percentage equal to 0.
Merger (merged owned entity) - initial consolidation Ownership percentage which, in the new shareholding relationship, the owner holds in the entity that has incorporated one of its owned entities.
Merger (merged owned entity) - deconsolidation Ownership percentage equal to 0.

Goodwill calculation

Goodwill is calculated as the difference between the overall price incurred for the acquisition of the entity and the current value attributed to the asset and liability items that make up the entity.

Goodwill can be calculated according to two different methods:

Method Description
Traditional Goodwill is calculated as the difference between the price paid for the purchase (value of the financial investment) and the owned entity's net equity.
Full Goodwill This method is applied when, following the event, the owner entity acquires control over the owned entity. It therefore requires Goodwill to be calculated both for the group and for minorities. Full Goodwill constitutes the difference between the owned entity's real value (fair value) and its net equity when control is acquired.

Full Goodwill.

IFRS 3 (Business Combinations - Allocation of goodwill to the group and to minorities) is an international accounting standard governing the accounting of business combinations. According to this principle, Goodwill must be calculated as the difference between the financial investment acquisition cost and the owned entity's net equity value as at the acquisition date (Full Goodwill method).

the Owned entity fair value (in credit) is the owned entity's net equity value as at the acquisition date (and is therefore expressed at the current value).

This value only makes sense for events that entail the acquisition of control over an entity, or "Initial consolidation - with control - Full goodwill" and "Step up consolidation - control obtained - Full goodwill" events.

Note: the entered value must be have same sign used in the net equity accounts.

Updating Consolidation Areas linked to the process

When the ownership structure register is changed, it may be necessary to update the outcomes of the definition of non-locked consolidation areas linked to the selected process. Based on the consolidation areas definition table, CCH Tagetik is able to regenerate the table that deploys the entities forming part of the definition with the percentages updated according to the changes made to the ownership structure register.

Other information on events

For every financial investment event, the following additional information can be inserted:

  • Assignment price for intragroup assignment events with a sales model. This figure is used by the financial investment eliminations data processing from the ownership structure register to generate the intragroup financial investment assignment journals.
  • Other data purely for information purposes.

This information is inserted in the dedicated Other information tab on the event data page (see Event Data page).