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Hyperion Financial Management – Proof of Concept

POC Scope and Assumptions

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Agenda

• Holding and Subsidiary companies• Consolidation Introduction• Entities and Balancing segment• Currency,Calendar and Chart of Accounts

(segments)• Chart of Accounts (segments) and Data• Top down and Bottom up approach• Journals and Balances• Describe the consolidation process• Demo Scenarios

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Holding and Subsidiary Companies

• A company that owns enough voting stock in another company to control management and operations by influencing or electing its board of directors. also called parent company. • A subsidiary, in business matters, is an entity that is • controlled by a separate higher entity . The controlled entity• is called a company, corporation, or limited liability company;• and in some cases can be a government or state-owned• enterprise, and the controlling entity is called its parent Wholly owned subsidiary whose parent company owns 100% of its

common stock and assets. Incase of partially owned subsidiary Parent does not own 100%

stock and assets.

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HFM-Consolidation Definition

Consolidation or amalgamation is the act of merging many

things into one. In business, it often refers to the mergers and acquisitions of many smaller

companies into much larger ones. In the context of

financial accounting, consolidation refers to the aggregation of

financial statements of a group company as a consolidated account In preparing consolidated financial statements, an

entity combines the financial statements of the parent and its subsidiaries by adding together assets, liabilities, equity, income and expenses. In order for the consolidated financial statements to present the group’s financial information as that of a single economic entity, intragroup

balances and transactions and profits and losses resulting

from intra-group transactions must be eliminated in full.

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HFM-Entities Definition

A business entity is an entity that is a group of

people organized for some profitable or charitable purpose. Business Entity is an organization that

possesses a separate existence for statutory and

tax purposes

That the accounting records reflect the financial activities of a specific corporate entity, separate and distinct from the people who own,finance it or work in it. It is one of the 'ground rules' of accounting.

Balancing segment is used in apps ebiz financials for transaction balancing.

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HFM-Consolidation Process

• Run Financial Calculations• Perform currency translations• Apply ownership percentages• Eliminate Intercompany balances

Scenario 1• Consolidation for a Full Ownership Subsidiary• Parent is Etisalat Group (AED)• Child is Etisalat UAE (AED) 100 % owned

Parent COA, Currency and calendar is as follows: COA segments- (Balancing Segment-Entity-Region code-CC-

Product code-Account code-Future) Functional Currency (AED)Calendar year is used as financial year

Child COA, Currency and calendar is as follows: COA segments- (Balncing segment-Entity-Region code-CC-

Product code-Account code-Future)Functional Currency (AED)Calendar year is used as financial year

Contd.• Simple consolidation only child Account balances

will be clubbed in parent account balances• Parent Etisalat Group is having following balances: Assets-3,00,000 (AED)Liability-2,00,000 (AED)Profit- 1,00,000 (AED)

• Child Etisalat UAE is having following balances:Assets-2,500 (AED)Liability-2,000 (AED)Profit- 500 (AED)After consolidation will have following new balances in parent

Etisalat Group books:Assets-3,02,500 (AED)Liability-2,02,000 (AED)Profit- 1,00,500 (AED)

Elimination of Intercompany transactions when 100% owned subsidiary

Case 1 - Leases of property under operating leases Etisalat Group (parent company) leased space for a sale office to its

subsidiary, Etisalat UAE (subsidiary company), under a 10-year lease starting on 1 April 2008. The annual rental, payable in advance, is $25,000. Both companies have a year end of 30 June.

 Accounting entries in the books of Etisalat Group for advance monthly

rental income provision is Dr. Intercompany Receivable – P ($25,000 x 3/12) $6,250Cr. Rental income – P ($25,000 x 3/12) $6,250 Accounting entries in the books of Etisalat UAE for advance monthly

rental expense provision is Dr. Rental expenses – S $6,250Cr. Intercompany Payable – S $6,2500 

Contd……….

Elimination of Intercompany transactions when 100% owned subsidiaryContd….  To eliminate intercompany rental income and

expense.The accounting entries for the year to 30 June 2008 to eliminate

this intra-group rental income and rental expenses in the books of parent Etisalat Group are:

During financial consolidation following entry to be passed to 30/06/2008Dr. Rental income – P ($25,000 x 3/12) $6,250Cr. Rental expenses – S $6,250

 

Scenario 2• Consolidation for a Majority Ownership• Parent is Etisalat Group (AED) Parent COA, Currency and calendar is as follows: COA segments- (Balancing Segment-Entity-Region code-

CC-Product code-Account code-Future) Functional Currency (AED) Calendar year is used as financial year• Child is Etisalat India (INR) (80% holding)Child COA, Currency and calendar is as follows: COA segments- (Balancing Segment-Entity-CC-Account

code-Future) Functional Currency (INR) Bank closing year is used as financial year (01-april to 31-

mar)Note: In this case COA are not same also while consolidation utmost care

must be taken when summing child balances into parent generally we use mapping sets to map child accounts to parents also we have to use cross exchange rate I.e.

INR to AED also what rate type should be used like corporate, spot, closing etc.

Scenario 2•Sale of inventories at a profit to a

partiallyowned subsidiary Parent is Etisalat Group (AED) Child is Etisalat India (INR) (80% holding) During the accounting year ended 30 June 2008, Etisalat Group

sold goods to an 80%-owned subsidiary, Etisalat India, for an amount of $480,000; the goods were priced at 25% above cost. Etisalat India had 30% of the goods from Etisalat Group in inventories on 30 June 2008. At 30 June 2008, Etisalat India still owned $50,000 for goods purchased from Etisalat Group. Both companies use a periodic inventory system and have an accounting year end of 30 June.

Accounting in the books of Etisalat Group  Dr. Intercompany accounts receivable 480,000 Cr. Intercompany sales 480,000 Dr. Cash ($480,000 - $50,000) 430,000

Cr. Intercompany accounts receivable 430,000 Dr. Inventories ($480,000 X 30%) 144,000 Cr. Cost of goods sold 144,000

Contd….

Scenario 2 Contd…. Accounting in the books of Etisalat India Dr. Intercompany purchases 480,000Cr. Intercompany accounts payable 480,000Dr. Intercompany accounts payable 430,000Cr. Cash 430,000The accounting entries needed to eliminate the intra-group

transactions and the related unrealized profits in inventories are:

30/06/2008Dr. Intercompany sales – P $480,000Cr. Intercompany purchases – S $480,000To eliminate intercompany sales and purchases.30/06/2008Dr. Intercompany accounts payable – S $50,000Cr. Intercompany accounts receivable – P $50,000To eliminate intercompany accounts receivable and payable. 30/06/2008Dr. Consolidated retained earnings $28,800Cr. Inventory – S [($480,000 x 30%) x 25%/(1 + 25%)] $28,800To eliminate unrealized profit on inventories.

Scenario 3

• Intercompany transactions are not matching• IC Setup• IC Reports as a part of Audit trail showing cases

of mismatched IC transactions, when intercompany receivable and payables is not matched then first reconciliation should be done then rectifications then matching and consolidation.

Scenario 4

• Multi-currency Consolidation• Parent is Atlantique Group (AED)• Child is Atlanqtiue Telecom (CAF)• Show conversions, rates setup, types of rates. • Group Consolidated Balance Sheet will be in AED

currency.

Scenario 5

• Conversion between GAAP and IFRS• One specific example of account treatment

conversion from Indian GAAP to IFRS. • It is assumed that the Indian company Balance

Sheet is drawn up using Indian GAAP, but the Group is consolidated using the IFR Standards. Adjustments are to a Single Line Item example to show the effects restatements in IFRS.

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