Part 4 - Consolidations / EPS / Employee benfits / Events after the reporting period

Question 1

What is business combination?

Answer 1

a transaction or other event in which an acquirer obtains control of one or more businesses

Question 2

All business combinations should be accounted for by

Answer 2

acquisition method

Question 3

Purchase price allocation calculation

Answer 3

purchase price imputed at 100% (purchase price = FV of NCI or purchase price / ownership % acquired)
less net assets acquired at book value
equal purchase price discrepancy
Allocate to each FMV differential (FMV - book value)
equal good will

Question 4

What are some purchase price allocation amounts not included?

Answer 4

Acquisition related cost (finder fee, advisory, legal, accounting) are not considered and are expensed in profit and loss

Only cost to issue debt or equity securities are capitalized in BS

same with separate transaction are not considered

Question 5

What happens to baring purchase

Answer 5

if purchase price less than FV of asset and liabilities, recognize gain in acquirer

Question 6

Step acquisitions

Answer 6

acquisition is acquired in stages (initial purchased 35%, now 40% additional)
acquirer remeasures its previously held equity interest in the acquiree at its acquisition-date FV and recognize the resulting gain or loss

Question 7

Measurement period

Answer 7

if initial accounting is incomplete, acquirer will use provisional amount
during measurement period, retrospective adjustment will be made

measurement can’t exceed for more than 1 yr

Question 8

Control - investor must have all the following

Answer 8

• power over the investee
• exposure, or rights, to variable returns from its involvement with the investee- investor’s return have potential to vary due to investee’s performance
• the ability to use its power over the investee to affect the amount of the investor’s returns

Question 9

Power - investors has…

Answer 9

• investor has existing rights that give it the current ability to direct the activities that significantly affect the investee’s return

investor owns, directly or indirectly through subsidiaries, more than 50% of voting rights

Question 10

If both FS of parent and sub at different dates?

Answer 10

Should be the same unless impracticable

make adjustments for significant transactions or events in intervening period. no more than 3 months

Question 11

an entity can elected to account for its investments in subsidiaries, joint ventures and associated at…

Answer 11

either at cost, or using the equity method (IFRS 9 financial instruments).

dividend from those are also recognized in the separate fs when declared (except when using IFRS 9 - reduction in carrying amount of the investment)

Question 12

Basic EPS formula

Answer 12

Profit/loss attributable to ordinary shares / weighted average # or ordinary shares outstanding during period

Question 13

What is diluted EPS?

Answer 13

= Profit/loss attributable to ordinary shares and impact of dilutive potential ordinary shares / Weighted average # of ordinary shares outstanding and impact of dilutive potential ordinary shares

Question 14

How to account for convertible securities related to diluted EPS?

Answer 14

treat as if converted at beginning of the period or time of issue if later

Question 15

How to account for option and warrants?

Answer 15

Use treasury stock method:

• treat as if exercised at earlier of beg of period or time of issue
• assume proceeds from exercise at the average market price during the period
• incremental shares should be included in denominator

Question 16

What is basic Earnings per share calculation?

Answer 16

(NI - preferred dividend) / weighted average # of common shares

Question 17

What’s the definition of preferred dividend for EPS calculation?

Answer 17

• non-cumulative shares - dividends declared
• cumulative shares - only current yr dividend entitlement
• any stock split/stock dividend is treated in effect for the whole period

Question 18

What is in-the-money?

Answer 18

exercise price is lower than market value

Question 19

How to calculate diluted EPS?

Answer 19

((Profit or loss attributable to common equity holders of parent company
+ After-tax interest on convertible debt + Convertible preferred dividends)) ÷
(Weighted average number of common shares outstanding during the period
+ All dilutive potential common stock)

Question 20

What is defined contribution pension plan?

Answer 20

employer contributions are fixed - employee accepts risk

Question 21

What is defined benefit pension plan?

Answer 21

benefits are fixed - employer accepts risk

Question 22

Why do any actuarial gain/losses (experience adjustments) and differences between actual return on plan assets and expected return on plan asset have to be recorded in OCI?

Answer 22

The rationale for including the net remeasurement gains or losses in OCI rather than in net income is that remeasurement gains and losses arise as a result of unpredictable changes in the value of plan assets or the Defined benefit obligation

Question 23

Defined benefit obligation

Answer 23

present value of all future employee benefits estimated to be paid as determined by the actuary. track but not on fs

Question 24

Plan assets

Answer 24

Most benefit plans are funded because of regulatory requirements. When a benefit plan is funded, assets are placed in a separate legal entity (a trust). The assets are not included on the balance sheet of the reporting entity because the reporting entity does not own the assets

Question 25

Current service cost

Answer 25

actuarial present value of future benefits earned by the employee for providing service in the current year, net of any contributions made by the employee.

Question 26

Past service cost

Answer 26

arises as a result of plan initiation or plan amendment

Question 27

Net interest cost

Answer 27

Net interest cost consists of interest expense on the DBO net of interest income earned on plan assets.

Question 28

Net defined benefit asset or liability

Answer 28

The fair value of the plan assets is deducted from the DBO to determine the plan deficit or surplus.

Question 29

Remeasurement gains and losses

Answer 29

Remeasurement gains and losses are determined as the difference between expected and actual values for the DBO and plan assets. Remeasurement gains and losses on the DBO and on plan assets are netted and recognized as a component of other comprehensive income (OCI).

Question 30

Termination benefits

Answer 30

employee benefits payable as a result of either:

• entity’s decision to terminate an employee’s employment
• employee’s decision to accept voluntary redundancy in exchange for benefits

Question 31

Events after the reporting period is an events that occur between…

Answer 31

the end of the reporting period and the date when the fs are authorized for issue

Question 32

during the subsequent period, if the condition existed at bs date -

Answer 32

it will be type 1 subsequent event and will be adjusted in FS for subsequent event

Question 33

If the event does not related to condition existing at BS during a subsequent event

Answer 33

will need to disclose when it cause a significant effect of assets, liabilities or operations.

• nature of event
• estimate of amount

Question 34

If a dividend is declared after year end

Answer 34

don’t record as liability for that period

Question 35

If mgmt determine after year end to liquidate the entity

Answer 35

don’t prepare fs on a going concern basis

Question 36

What’s the differences between IAS 10 and ASPE 3820 for subsequent event?

Answer 36

IAS 10 requires reporting of subsequent event to the date of authorization to issue FS but ASPE 3820 goes to the date of completion of FS