What is equity method in SAP FI-LC - Consolidation?

SAP Term: equity method

• Component: FI-LC

• Component Name: Consolidation

• Description: A method used to consolidate affiliated companies, as well as subsidiaries or joint ventures, that are not consolidated using the purchase or proportional methods. The individual financial statement data also referred to as reported financial data of an equity company is not taken into account in the consolidated financial statements. Therefore you do not need to enter the data into the system. Only changes in the stockholders' equity of the company are taken into consideration; these affect the investment value stated in the consolidated balance sheet. Therefore, the term "valuation method" also applies here.

Smart SAP Assistant

• Key Concepts: 
  The equity method is an accounting process used in SAP FI-LC Consolidation to account for investments in associated companies. It is used when an investor holds a significant influence over the investee, but not control. Under the equity method, the investor records its investment in the investee at cost and adjusts it for the investor’s share of the investee’s profits or losses. 
  
  How to use it: 
  In SAP FI-LC Consolidation, the equity method is used to record investments in associated companies. The investor records its investment in the investee at cost and adjusts it for the investor’s share of the investee’s profits or losses. The investor also records its share of the investee’s profits or losses as income or expenses on its own financial statements. 
  
  Tips & Tricks: 
  When using the equity method, it is important to remember that the investor’s share of the investee’s profits or losses should be recorded as income or expenses on its own financial statements. Additionally, it is important to keep track of any changes in ownership of the investee, as this may affect how the equity method is applied. 
  
  Related Information: 
  The equity method is similar to the consolidation method, which is used when an investor has control over an investee. Under the consolidation method, the investor records its investment in the investee at fair value and consolidates its financial statements with those of the investee.