Ninja Notes: Consolidation, Derivatives, Hedging, & Foreign Currency Translation Flashcards
What method is used when 20% or less Ownership exists?
Fair Value method.
What method is used when 21-50% Ownership exists?
Equity method.
What happens when dividends are received from the investee under the equity method?
Divs. received reduce the Investment account and are not income.
When is Consolidation needed?
When 50% or more Ownership exists?
How are assets and liabs. recorded on the Acquisition Date under consolidation?
At fair value.
What happens to acquired shares under consolidation that were previously accounted for under the FV or Equity method?
They are revalued to Fair Value and this results in a gain or loss in the current period.
How are acquisition costs handled?
They are expensed in the current period, not capitalized.
How are Stock registration and issuance costs handled?
They are Netted against Stock proceeds.
DTA?
Deduction will reduce future income taxes expenses.
DTA?
Income will be taxable in a future period and will increase future tax expense.
Current Deferred tax assets and liabs. will?
Impact income tax expense within 12 months.
How are Derivatives recorded when acquired and valued afterwards?
They are recorded at cost when acquired and revalued at Fair value each period on the B/S.
What are Fair value hedges?
They offset exposure to changes in the value of a recognized asset/liab. or of an unrecognized commitment.
How are Fair value hedges initially recorded and how are gains and losses handled?
Recorded on the B/S at Fair value. Gains and losses go to the I/S.
What are Cash flow hedges?
Hedges of exposure to fluctuations in cash flows?
How are Cash flow hedges initially recorded and how are gains and losses handled?
Recorded on B/S at Fair value. Gains and losses go to OCI.
How are Foreign currency hedge Gains and Losses handled?
Gains and losses go to OCI.
What are some required disclosure for Hedging?
> Objectives and Strategies
Context to help investor understand instrument
Risk management policies
Complete list of Hedged instruments
What is a Functional currency?
An entity’s functional currency is the currency of the primary economic environment in which the entity operates; normally that is the currency of the environment in which an entity primarily generates and expends cash.
What a Reporting currency?
The currency in which an enterprise prepares its F/S.
What is a Foreign currency translation?
The process of expressing in the reporting currency of the enterprise those amounts that are denominated or measured in a diff. currency.
What are Foreign currency transactions
Transactions whose terms are denominated in a currency other than the entity’s functional currency.
Where do Foreign currency transaction Gains/losses go?
G/L go to the I/S.
Where do Foreign currency translation gains/losses go?
G/L go to OCI.
What is a Local currency?
The currency of a particular country being referred.
When the functional currency = Local currency, how is asset and liab. translation handled?
Use Current Rate as of B/S date.
When the functional currency = Local currency, how is rev. and exp. translation handled?
Use the Weighted-avg. Exchanges rate for the current year.
What happens if Functional currency = Reporting currency?
Foreign currency F/S are re-measured into the Reporting currency (Dollar) using the Weighted-avg exchange rate.
