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

SAP Term: purchase method

• Component: FI-LC

• Component Name: Consolidation

• Description: The purchase method is one of the consolidation methods. The purchase method is used when the parent company of a subgroup has a dominating influence over a specific internal trading partner subsidiary. This degree of influence exists when both companies share the same board members or if the parent's investment in the subsidiary exceeds 50%.

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• Key Concepts: 
  The purchase method is a consolidation method used in SAP FI-LC (Financial Accounting-Lease Contract) to combine the financial statements of two or more companies. It is based on the assumption that one company (the acquirer) has purchased the assets and liabilities of another company (the acquiree). The purchase method requires that the acquirer record the assets and liabilities of the acquiree at their fair market value at the time of acquisition. 
  
  How to use it: 
  In SAP FI-LC, the purchase method is used to consolidate the financial statements of two or more companies. The acquirer records the assets and liabilities of the acquiree at their fair market value at the time of acquisition. The acquirer then records any difference between the fair market value and the book value of the assets and liabilities as goodwill or a bargain purchase gain. 
  
  Tips & Tricks: 
  When using the purchase method, it is important to ensure that all assets and liabilities are recorded at their fair market value. This will ensure that any goodwill or bargain purchase gain is accurately recorded. Additionally, it is important to ensure that all transactions are properly documented in order to maintain an accurate audit trail. 
  
  Related Information: 
  The purchase method is one of several consolidation methods available in SAP FI-LC. Other methods include the equity method, pooling of interests, and pro rata consolidation. Each method has its own advantages and disadvantages, so it is important to choose the right one for your specific situation. Additionally, it is important to consult with an accountant or other financial professional when making decisions about which consolidation method to use.