What is hidden reserves in SAP FI-LC - Consolidation?

SAP Term: hidden reserves

• Component: FI-LC

• Component Name: Consolidation

• Description: The hidden reserves also referred to as fair value adjustments are the difference between the value of a balance sheet item at the time of consolidation and its value on the balance sheet of the investee company, the latter value being less if the item is on the asset side, or greater if on the liabilities side. Hidden reserves affect the consolidation of investments. When the book value method is applied, and the differential is located on the asset side, hidden reserves are eliminated up to the amount of the group's share. When the revaluation method is used, one of the following applies: The balance sheet items are already revalued on the corporate valuation, in which case there is no need to make entries for the hidden reserves. The balance sheet items are revalued when eliminating the group's share and the minority share during consolidation of investments. If the group's share of hidden reserves exceeds the asset-side differential, these can be eliminated proportionally, or acco

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• Key Concepts: 
  Hidden reserves are a type of financial asset that is not reported on the balance sheet of a company. They are created when a company has an unrealized gain or loss on an asset or liability that is not yet recognized in the financial statements. Hidden reserves can be used to offset future losses or to increase future profits. 
  
  How to use it: 
  In SAP FI-LC Consolidation, hidden reserves are used to adjust the consolidated financial statements of a group of companies. The hidden reserves are calculated by taking the difference between the book value and the fair value of the assets and liabilities of each company in the group. The hidden reserves are then used to adjust the consolidated financial statements, which can help to reduce the overall risk of the group. 
  
  Tips & Tricks: 
  When calculating hidden reserves, it is important to consider any potential tax implications that may arise from their use. Additionally, it is important to ensure that all companies in the group are using consistent accounting methods when calculating their hidden reserves. 
  
  Related Information: 
  Hidden reserves can also be used in other areas of SAP, such as SAP FI-GL and SAP FI-SL. Additionally, there are other types of financial assets that can be used to adjust the consolidated financial statements, such as deferred taxes and unrealized gains and losses.