F3 Flashcards
Valuation method for marketable securities (initial and unrealized holding gain/loss)?
Trading: at FV, holding gain/loss are included in earnings (income from continueing operation);
AFS: at FV, holding gain/loss reported in OCI;
Held-to-Maturity: at amortized cost, won’t have holding gain/loss. (For all three, permanant impairment losses are realized losses in I/S)
How are marketable securities reclassification valued? Unrealized holding G/L at date of transfer?
Valued at FV. Holding G/L: from trading–already rec’d in earnings, not reversed; to trading–rec in earnings immediately; HtM to AFS–rec in OCI; AFS to HtM–amortize into I/S any G/L that was in OCI.
What’s the cost (fair value) method of F/S combination? When to use?
When no significant influence (less than 20%). Treated as AFS securities–Initial Investment in investee recorded at cost (fair value of consideration given); holding G/L(mark to market) to OCI. Rec actual dividend as income, do not rec prorated investee’s earnings.
What’s the equity method of F/S combination? When to use?
When there is significant influence but less than 50% ownership. Treated as bank account. Initial value at cost (if cost is higher than NBV, difference need to be amortized); Investment in investee is subsequently increased(Dr) by % earnings (Cr equity in investee income–goes to I/S); reduced by % dividend paid-out(=% received). % investee’s earnings are income, dividends are withdrwals (not income)
Under equity method, when initial cost is higher than NBV of asset, how is the difference accounted?
Up to the fair value of net asset should be amortized(except for land) over remaining useful life, and any excess is goodwill. Amortization reduce income in I/S and reduce asset in B/S.
What method to use on joint venture investments?
Equity method.
When previous less than 20% holding investees (cost method) increased over 20% (significant influence, equity method), does the prior period need to be adjusted retrospectively?
Yes! Investment and retained earnings need to be retrospectively adjusted using equity method (old percentage) right away.
What’s the aquisition method, when to use?
When in control (over 50%). Record investment in sub at FV at aquisition date (transaction close date). When consolidating (same day), consolidate all assets (including identifiable intangibles,e.g. in process R&D) and liability at 100% FV(balance sheet adjustment), any remaining is goodwill(any deficit is gain); sub's entire equity (=CAR=NBV) is eliminated; parent's investment in sub is eliminated; noncontrolling interest (equity) is created.
Under acquisition method, what’s included in the original carrying value of investment in sub acount?
Nothing except for the FV paid at aquisition date.
Legal fees and indirect costs are expensed, SEC filing fees are direct reduction of stock issued (debit APIC)
Where is noncontrolling interest reported?
Reported at fair value in the equity section of the consolidated balance sheet, separately from the parent’s equity. Adjusted by subsequent share of net income and dividend. Can be negative balance (due to loss allocation)
Which accounts are different under full goodwill method(GAAP and IFRS) and partial goodwill method(IFRS only)?
Equity account - Noncontrolling interest (include noncontrolling percent of goodwill or not) and asset account - Goodwill (report full goodwill or parent-owned percentage)
