Day 1

Question 1

Control

Answer 1

• Greater than 50% of the voting rights (US GAAP)
• Accounting: assets and claims against assets

Question 2

Joint Control / Joint Arrangement

Answer 2

Contractually agreed sharing of control
* Joint Operation: Account for assets and liabilities
* Joint venture: Account for investment asset using equity method

Question 3

Significant Influence

Answer 3

• Ability to participate in financial and operating policies
• 20%-50% typically, although dependent on distribution of the remaining ownership

Question 4

Less than Significant Influence

Answer 4

Accounting: investment asset using fair value model (IFRS FVOCI)

Question 5

Degrees of Influence

Answer 5

• Control
• Joint Control / Joint Arrangement
• Significant Influence
• Less than Significant Influence

Question 6

Economics of Goodwill

Answer 6

• Not amortized but impairment tested
• Goodwill is a wasting asset
• Measure: Fair Value of expected synergies and other benefits
  * Can be due to: market Imperfections including the potential to earn monopoly profits due to barriers to entry (legal, logistical or financial)

Question 7

Amortization vs Depreciation

Answer 7

• Amortization - Intangible assets
• Depreciation - Tangible assets

Question 8

NCI
(In Business Combinations)

Answer 8

• Included in equity
• Measure:
  * Fair Value (US GAAP)
  * Fair Value OR NCI’s % of group’s value of subsidiary’s net assets (IFRS)

Question 9

Information Gap

Answer 9

• Typically reflected in the difference between market cap and balance sheet
• Consequently: extinguishing NCI or doing share buybacks can result in negative equity

Question 10

Internally Generated Goodwill & Brands

Answer 10

Never recognised as an asset

Question 11

Internally Generated Intangible Assets

Answer 11

Expensed

Question 12

Provision

Answer 12

• Obligation of uncertain timing or amount, which passes recognition criteria
• Recognised on balance sheet
• Probable (IFRS >50%; US GAAP >75%)
• Reliably measurable

Question 13

Contingent liability

Answer 13

• Not recognised on balance sheet
• Contingent on an uncertain outcome (eg a court case)
• Or can’t be accurately measured

Question 14

Recognition of a Provision
(ie when a contingent liability becomes a provision)

Answer 14

When they are probable and can be reliably measured.
* Probability >50% IFRS or 75% US GAAP