Case 2

Question 1

what section of the cashflow statement does the purchase of a subsidiary go into

Answer 1

it will go into the investing section

Question 2

if the parent company accounts for the acqusition using the equity method, net income on the corporate books will be equal to what

Answer 2

the parents share of consolidated net income

Question 3

the equity method appeals to public or private companies

Answer 3

private

Question 4

what will change in the investment entry regarding equity and cost method

Answer 4

the investment in sub account will change based on net income and dividends issued

Question 5

what are joint arrangements and what does that mean to decision making

Answer 5

when 2 or more parties have joint control, meaning that no single party can make a decision unilaterally

Question 6

what are the 2 types of joint arrangements

Answer 6

joint operation and joint venture

Question 7

what are feature of joint operations

Answer 7

• parties have joint control
• have rights to assets and obligation to liabilities
• account for their share proportionately of assets, liabilities, revenues, expenses

Question 8

what are features of a joint venture

Answer 8

• parties that have joint control have right only to the net assets/BV/equity
• the full assets are held by the JV which is a separate entity
• have to account for equity using the equity method

Question 9

if there is no structure through a separate entity, a joint arrangement will be a joint

Answer 9

operation

Question 10

if a joint arrangement is structure through a separate entity, what must be considered

Answer 10

• form of entity
• terms of contract
  based on this decide if it is joint operation or venture

Question 11

when does commercial substance arise and give an example

Answer 11

if the cash flows of the asset changes after the transfer
example, if a building is transferred into a joint venture and renovations were done which enhances cash flows

Question 12

what is the building example with no commercial substance

Answer 12

if the building was transferred into a joint operation and it kept on being run as before thus no cash flow change

Question 13

commercial substance problem: JE for
land being rolled which was carried at 100, and had a fair value of 250, receives in return 40% in joint arrangement

Answer 13

land - 250
land (old) - 100
realized gain @ 60% not owned - 90
unreal gain @ 40% new own - 60

Question 14

how would a journal entry treat the gain if there was no commercial substance

Answer 14

contributor would record the entire gain as an unrealized gain

Question 15

under ifrs if there is no controls or sig influence, what are the recording options

Answer 15

fvtpl or fvoci

Question 16

at what value are new shares bought recorded and where are they recorded

Answer 16

they are recorded at fv in the investment account

Question 17

if new shares bought give you significant influence, what do you do

Answer 17

start using the equity method

Question 18

when must the differentials and gw be determined when using the equity method

Answer 18

on the date when the change was made/ date of purchase

Question 19

if additional purchase of shares grants you control, what do you do

Answer 19

start consolidating

Question 20

if a parent loses significant control what do they do

Answer 20

remove portion sold and reevevaluate the remaining at FV

Question 21

what is the parent’s entry when they sell equity they own in a sub

Answer 21

cash
inv in sub
contribution surplus

the nci on the consolidation entry increses proportionally to how much is sold in inv in sub

Question 22

when your sub issues brand new share, how does the parent calculate the benefit

Answer 22

the new share are added to the total and a % is found from the shares owned to the new amount of total shares (percentage should be diluted)
new % x new share price total
less: old % x old share total
benefit

Question 23

what is the entry to record the benefit when the sub issues new shares

Answer 23

invest in sub
contribution surplus

Question 24

what are special purpose entities

Answer 24

businesses established to protect the collateral used to secure financing

Question 25

what is the airline example of SPE

Answer 25

airline puts the plane and the related debt into the SPE - in the case that the plane crashes, the SPE cannot be sued and the assets are safe. this also protects the collateral used when gaining financing

Question 26

what company misused SPEs

Answer 26

enron, it placed all of its debt in SPEs and found loopholes so that it would not consolidate in order to make it own statements look better

Question 27

what are the 3 aspects of control

Answer 27

• power over investee
• rights to variable returns over investee
• ability to affects investors return

Question 28

what is the historical rate and what items is it used for

Answer 28

rate when transaction was done
used for non-monetary items

Question 29

what is derivaive hedging and non-derivative hedging

Answer 29

derivative - using puts and calls
non-derivative - using assets and liabilities

Question 30

what is the hedged and hedging item

Answer 30

hedged item is the item being protected
hedging item is the due to/from

Question 31

when is a forward contract to buy used and what is fixed

Answer 31

used when the hedged item is your payable. the due to will be fixed because you are buying forward at a fixed rate

Question 32

what is a speculative hedge

Answer 32

when you sign a forward when there is no hedged item

Question 33

what are the two types of hedge

Answer 33

fair value and cash flow

Question 34

when is a hedge fair vaule and when is it cash flow

Answer 34

fair value - when the assets or liability is recognized and exsits
cash flow - when there is only a firm commitment (so hedge exists before a or l)

Question 35

what is a cbv

Answer 35

it is a trained professional in business valuation
they have varying background (CPA, CFA, Eng,)

Question 36

why become a cbv

Answer 36

• work is diverse
• weather economic strain
• competitive salary
• work bring value to business
• in demand skills and expertise

Question 37

what does a cbv do

Answer 37

• fv of finanvial reporting
• brand/ip valuation
• transfer pricing
• family disputes
• corporate advisory
• corporate strategy and planning