What is purchase method in SAP EC-CS - Consolidation?

SAP Term: purchase method

• Component: EC-CS

• Component Name: Consolidation

• Description: An accounting technique of consolidation of investments that is used when the parent unit of a consolidation group exercises a dominating influence over a specific investee unit. A dominating influence is given if the parent unit: Directly or indirectly owns the majority of the investee's voting rights; or Is able to exercise such influence due to a contract, the articles of incorporation, and so forth.

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• Key Concepts: 
  The purchase method in SAP EC-CS Consolidation is a way of consolidating the financial statements of multiple companies into one. It is based on the assumption that one company (the parent company) has acquired another company (the subsidiary) and is now responsible for its financial statements. The purchase method requires the parent company to record the assets and liabilities of the subsidiary at their fair market value at the time of acquisition. 
  
  How to use it: 
  In order to use the purchase method, the parent company must first identify all of the assets and liabilities of the subsidiary. This includes both tangible and intangible assets, such as property, plant, and equipment; intangible assets such as patents, trademarks, and copyrights; and liabilities such as accounts payable, loans, and other obligations. Once these have been identified, the parent company must then record them at their fair market value at the time of acquisition. 
  
  Tips & Tricks: 
  When using the purchase method, it is important to remember that any goodwill or other intangible assets that are acquired must be recorded separately from other assets. Additionally, any liabilities that are assumed by the parent company must also be recorded separately from other liabilities. 
  
  Related Information: 
  The purchase method is one of several methods used in SAP EC-CS Consolidation for consolidating financial statements. Other methods include the equity method and the cost method. Each method has its own advantages and disadvantages, so it is important to consider which one is best suited for a particular situation before making a decision.