Case 2 Flashcards
what section of the cashflow statement does the purchase of a subsidiary go into
it will go into the investing section
if the parent company accounts for the acqusition using the equity method, net income on the corporate books will be equal to what
the parents share of consolidated net income
the equity method appeals to public or private companies
private
what will change in the investment entry regarding equity and cost method
the investment in sub account will change based on net income and dividends issued
what are joint arrangements and what does that mean to decision making
when 2 or more parties have joint control, meaning that no single party can make a decision unilaterally
what are the 2 types of joint arrangements
joint operation and joint venture
what are feature of joint operations
- parties have joint control
- have rights to assets and obligation to liabilities
- account for their share proportionately of assets, liabilities, revenues, expenses
what are features of a joint venture
- 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
if there is no structure through a separate entity, a joint arrangement will be a joint
operation
if a joint arrangement is structure through a separate entity, what must be considered
- form of entity
- terms of contract
based on this decide if it is joint operation or venture
when does commercial substance arise and give an example
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
what is the building example with no commercial substance
if the building was transferred into a joint operation and it kept on being run as before thus no cash flow change
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
land - 250
land (old) - 100
realized gain @ 60% not owned - 90
unreal gain @ 40% new own - 60
how would a journal entry treat the gain if there was no commercial substance
contributor would record the entire gain as an unrealized gain
under ifrs if there is no controls or sig influence, what are the recording options
fvtpl or fvoci
at what value are new shares bought recorded and where are they recorded
they are recorded at fv in the investment account
if new shares bought give you significant influence, what do you do
start using the equity method
when must the differentials and gw be determined when using the equity method
on the date when the change was made/ date of purchase
if additional purchase of shares grants you control, what do you do
start consolidating
if a parent loses significant control what do they do
remove portion sold and reevevaluate the remaining at FV
what is the parent’s entry when they sell equity they own in a sub
cash
inv in sub
contribution surplus
the nci on the consolidation entry increses proportionally to how much is sold in inv in sub
when your sub issues brand new share, how does the parent calculate the benefit
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
what is the entry to record the benefit when the sub issues new shares
invest in sub
contribution surplus
what are special purpose entities
businesses established to protect the collateral used to secure financing
what is the airline example of SPE
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
what company misused SPEs
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
what are the 3 aspects of control
- power over investee
- rights to variable returns over investee
- ability to affects investors return
what is the historical rate and what items is it used for
rate when transaction was done
used for non-monetary items
what is derivaive hedging and non-derivative hedging
derivative - using puts and calls
non-derivative - using assets and liabilities
what is the hedged and hedging item
hedged item is the item being protected
hedging item is the due to/from
when is a forward contract to buy used and what is fixed
used when the hedged item is your payable. the due to will be fixed because you are buying forward at a fixed rate
what is a speculative hedge
when you sign a forward when there is no hedged item
what are the two types of hedge
fair value and cash flow
when is a hedge fair vaule and when is it cash flow
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)
what is a cbv
it is a trained professional in business valuation
they have varying background (CPA, CFA, Eng,)
why become a cbv
- work is diverse
- weather economic strain
- competitive salary
- work bring value to business
- in demand skills and expertise
what does a cbv do
- fv of finanvial reporting
- brand/ip valuation
- transfer pricing
- family disputes
- corporate advisory
- corporate strategy and planning
