Case 1 Flashcards
definition of a non-strategic investment
hold a small ownership of interest in a company for trading or earning dividends
definition of strategic investment
hold larger ownership of a company in order to influence, agree, or control decisions of the company
when a company has control what sort of powers does it have?
- power of investee
- rights to returns
- ability to affect investor returns
what constitutes control?
- investor has over 50% ownership of stocks
- investor has less than 50% BUT has convertible bonds
- signed agreement giving investor right to votes
- ability to make operating decisions
When does significant influence arise
- representation on board
- participation in policy making
- material transactions between investor and assc.
- 20-50% of votes
when is the valuation allowance method used in recording investment and how does it work
- company uses single investment account
- val allow. works as a contra account
- stores unrealized gains and losses while investment is kept at cost
how does the equity investment recording method work
- inv recorded at cost
- adjustments go into equity account
- receiving dividend or recognizing some sort of loss from associate will reduce the investment account
ASPE - Options to record investment when in control
FV known - Consolidate, equity, FVTPL
FV NOT known - Equity, Cost
ASPE - Options to record investment when having sig. influence
FV known - Equity, FVTPL
FV NOT known - Equity, Cost
IFRS - Options to record investment when in control
Consolidate - options do not matter as they will be deleted anyway lol
IFRS - Options to record investment when having sig. influence
Equity method
IFRS - Options to record investment when having no control or sig. infl
FV or OCI
When does a business combination occur
Either
- assets are acquired
- control is established through shares
Process of buying assets
- buyer records A&L of sub
- BUYER LIKES TO BUY ASSETS BECAUSE OF THE POSSIBILITY TO CLAIM CCA
- selling corp still exists and will record a gain
- selling corp can wind up by buying back all its shares
features of buying shares
- can buy 51% of shares rather than assets
- acquiror exposes self to legal risk
- SHAREHOLDER PREFER TO SELL SHARES RATHER THAN ASSETS
How is amalgamation different from consolidation
two businesses merge into one - the prior two businesses cease to exist
how should professional fees be accounted for when issuing shares and why
should be seperately expensed and not added to value of shares - this is done because they do not add value
what is a liability contingency
when purchase price is linked to target or conditions
what does it mean for an asset to be considered identifiable and is goodwill so
it means it can be sold separately - goodwill is not so
what is a bargain purchase gain
negative goodwill - when you record a gain on an acquisition
a parent company must do what for all its subs under IFRS?
MUST prepare consolidated F/S for its subsidiaries - process does not affect the books of the individual subs
which F/S needs adjusting if purch and consolidation are done same day?
only balance sheet
asset recording methods
- proportionate depr. - increase both depr and assets proportionally
- net method - erase everything and set up as new
EXCEPTIONS TO CONSOLIDATIONS - wayne hinted at quiz
DO NOT NEED CONS IF ALL APPLY
- if its a parent AND a sub
- if it does not publicly trade
- if it does not have to file F/S to regulatory body
- if its parent company produces F/S that comply with IFRS
how is tax cost calculated
cost of asset - cca
when does a taxable temp diff occur
when amount paid on tax is less than tax expense - this means that the tax has been deferred forward because more CCA was claimed - creates a DITL
when does a deductible temp diff occur
when the amount to pay on tax is more than the tax expense - means that more CCA was claimed in comparison to depriciation
a debit differential creates what kind of DIT and why?
dit liability because company cannot claim amortization of the difference on its tax return
buying an asset that cannot be claimed for taxes means that the asset should be priced …..?
lower
land, investment and intangible cap gain or cap loss are taxed at ?
20%
what is the extra amount paid by the parent company called when purchasing sub
control premium
what portion of bargain purchase gain is attributable to the NCI
no portion is attributable to nci because the controlling company is the one that did the negotiations
why is goodwill on the book of the sub ignored?
because it is not an identifiable asset
summarize the 7 steps taken when consolidating a year later
- entry will reflect conditions from previous year
- amortize FV and impair GW
- eliminate inter-company transactions (div.)
- record dit effect
- allocate portion of sub N/I to NCI
- consolidate F/S
- prepare proof
how does goodwill impairment work in aspe
tested annually
when impaired it can go down to 0, but the rest of the assets in the GCU are not touched
how does goodwill impairment work in ifrs
if CGU recoverable amount is less than carrying amount GW is impaired to 0 and the rest of the assets in the CGU can also be reduced
if parent company reports under IFRS, what should the sub report under
even if the sub reports under ASPE it MUST convert to IFRS
