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11 Cards in this Set
- Front
- Back
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examples of variable interests
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1. guarantees of debt-loss
2. subordinated debt-loss instruments 3. lease residual value guarantees-loss 4. participation rights-profits 5. asset purchase options-benefit |
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controlling financial interset on the part of a primary beneficiary is deemed to exist when the following characteristics are present:
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-the direct or indirect ability to make decisions about the entity's activities
-the obligation to absorb any expected losses of the entity -the right to receive any expected residual returns of the entity *when these are present, consolidated financial statements must be produced |
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FIN 46R
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objective is to improve financial reporting by companies involved with VIEs, not to restrict their use, primary beneficiaries must disclose information about VIE in their footnotes
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procedures for consolidation of VIEs
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-valuations of assets, liabilities, and noncontrolling interest should be based on fair values except for two notable exceptions
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exception1
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assets transferred to the VIE from the primary beneficiary should be measured as if they had never been transferred
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exception2
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SFAS141 requires allocation of the cost of an investment to the underlying assets and liabilities, since no cost exists with a VIE, an IMPLIED VALUE should be used to substitute for the acquisition cost
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Implied Value < Assessed fair values of assets
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Assets are proportionately reduced
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Implied Value > Assessed fair values of assets
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difference is reported as:
-Goodwill (if VIe is a business) -Extraordinary loss (if VIe is not a business) |
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business
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"a self-sustaining integrated set of activities and assets conducted and managed for the purpose of providing a return to investors"
consists of: -inputs -processes applied to those inputs -resulting outputs used to generate revenues |
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disclosure requirements-primary beneficiary
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-nature,purpose,size & activities of the VIe
-carrying amount of consolidated assets pledged as collateral by the primary beneficiary -classification of consolidated assets pledged as collateral by the primary beneficiary -lack of recourse if creditors of the VIe have no recourse to the general credit of the primary beneficiary |
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disclosure requirements-non-primary beneficiaries
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-nature, purpose, size & activities of VIE
-when involvement with VIE began -nature of involvement with VIe -maximum exposure to loss as a result of involvement with VIE |
