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11 Cards in this Set

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  • Back
examples of variable interests
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
controlling financial interset on the part of a primary beneficiary is deemed to exist when the following characteristics are present:
-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
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
procedures for consolidation of VIEs
-valuations of assets, liabilities, and noncontrolling interest should be based on fair values except for two notable exceptions
assets transferred to the VIE from the primary beneficiary should be measured as if they had never been transferred
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
Implied Value < Assessed fair values of assets
Assets are proportionately reduced
Implied Value > Assessed fair values of assets
difference is reported as:
-Goodwill (if VIe is a business)
-Extraordinary loss (if VIe is not a business)
"a self-sustaining integrated set of activities and assets conducted and managed for the purpose of providing a return to investors"

consists of:
-processes applied to those inputs
-resulting outputs used to generate revenues
disclosure requirements-primary beneficiary
-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
disclosure requirements-non-primary beneficiaries
-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