Case 1

Question 1

definition of a non-strategic investment

Answer 1

hold a small ownership of interest in a company for trading or earning dividends

Question 2

definition of strategic investment

Answer 2

hold larger ownership of a company in order to influence, agree, or control decisions of the company

Question 3

when a company has control what sort of powers does it have?

Answer 3

• power of investee
• rights to returns
• ability to affect investor returns

Question 4

what constitutes control?

Answer 4

• 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

Question 5

When does significant influence arise

Answer 5

• representation on board
• participation in policy making
• material transactions between investor and assc.
• 20-50% of votes

Question 6

when is the valuation allowance method used in recording investment and how does it work

Answer 6

• company uses single investment account
• val allow. works as a contra account
• stores unrealized gains and losses while investment is kept at cost

Question 7

how does the equity investment recording method work

Answer 7

• inv recorded at cost
• adjustments go into equity account
• receiving dividend or recognizing some sort of loss from associate will reduce the investment account

Question 8

ASPE - Options to record investment when in control

Answer 8

FV known - Consolidate, equity, FVTPL
FV NOT known - Equity, Cost

Question 9

ASPE - Options to record investment when having sig. influence

Answer 9

FV known - Equity, FVTPL
FV NOT known - Equity, Cost

Question 10

IFRS - Options to record investment when in control

Answer 10

Consolidate - options do not matter as they will be deleted anyway lol

Question 11

IFRS - Options to record investment when having sig. influence

Answer 11

Equity method

Question 12

IFRS - Options to record investment when having no control or sig. infl

Answer 12

FV or OCI

Question 13

When does a business combination occur

Answer 13

Either
- assets are acquired
- control is established through shares

Question 14

Process of buying assets

Answer 14

• 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

Question 15

features of buying shares

Answer 15

• can buy 51% of shares rather than assets
• acquiror exposes self to legal risk
• SHAREHOLDER PREFER TO SELL SHARES RATHER THAN ASSETS

Question 16

How is amalgamation different from consolidation

Answer 16

two businesses merge into one - the prior two businesses cease to exist

Question 17

how should professional fees be accounted for when issuing shares and why

Answer 17

should be seperately expensed and not added to value of shares - this is done because they do not add value

Question 18

what is a liability contingency

Answer 18

when purchase price is linked to target or conditions

Question 19

what does it mean for an asset to be considered identifiable and is goodwill so

Answer 19

it means it can be sold separately - goodwill is not so

Question 20

what is a bargain purchase gain

Answer 20

negative goodwill - when you record a gain on an acquisition

Question 21

a parent company must do what for all its subs under IFRS?

Answer 21

MUST prepare consolidated F/S for its subsidiaries - process does not affect the books of the individual subs

Question 22

which F/S needs adjusting if purch and consolidation are done same day?

Answer 22

only balance sheet

Question 23

asset recording methods

Answer 23

• proportionate depr. - increase both depr and assets proportionally
• net method - erase everything and set up as new

Question 24

EXCEPTIONS TO CONSOLIDATIONS - wayne hinted at quiz

Answer 24

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

Question 25

how is tax cost calculated

Answer 25

cost of asset - cca

Question 26

when does a taxable temp diff occur

Answer 26

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

Question 27

when does a deductible temp diff occur

Answer 27

when the amount to pay on tax is more than the tax expense - means that more CCA was claimed in comparison to depriciation

Question 28

a debit differential creates what kind of DIT and why?

Answer 28

dit liability because company cannot claim amortization of the difference on its tax return

Question 29

buying an asset that cannot be claimed for taxes means that the asset should be priced …..?

Answer 29

lower

Question 30

land, investment and intangible cap gain or cap loss are taxed at ?

Answer 30

20%

Question 31

what is the extra amount paid by the parent company called when purchasing sub

Answer 31

control premium

Question 32

what portion of bargain purchase gain is attributable to the NCI

Answer 32

no portion is attributable to nci because the controlling company is the one that did the negotiations

Question 33

why is goodwill on the book of the sub ignored?

Answer 33

because it is not an identifiable asset

Question 34

summarize the 7 steps taken when consolidating a year later

Answer 34

• 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

Question 35

how does goodwill impairment work in aspe

Answer 35

tested annually
when impaired it can go down to 0, but the rest of the assets in the GCU are not touched

Question 36

how does goodwill impairment work in ifrs

Answer 36

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

Question 37

if parent company reports under IFRS, what should the sub report under

Answer 37

even if the sub reports under ASPE it MUST convert to IFRS