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26 Cards in this Set
- Front
- Back
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Characteristics of FV NI
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Direct costs of acquisition- expense immediatly
Dividends- Investment Income (when declared) Mark to market- Yes, unless Insufficient info. Classification of holding gains (losses)- net income Gain/ loss on disposal- SP- NBV |
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Characteristerics of FV- OCI
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Direct costs of acquisition-
Add to cost Dividends- Investment income Market to market- Yes unless sufficient inform Classification of holding gains (losses) OCI during holding period, reclassified to re on disposal SP- FV- on disposal date. |
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When to use FV NI?
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Must be used for short term held for trading investments. May be used for long term passive investments.
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When to Use FV- OCI?
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Investment is not short term and company elects to use FV-OCI model.
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Definition of control
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The power to make decisions about the financial and operating activities of another entity to obtain economic benefits from the other entity’s activities
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Definition of Significant influence
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Ability to exercise influence over the strategic operating, investing, and financing policies of an investee when control does not exist
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% of ownership for control
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>50% of shares
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% of ownership for Significant influence
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≥20% of shares
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Board representation for control
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>50% of board members
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Board representation significant influence
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≥20% of board members
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Policy making Control
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Direct input into decisions on policy
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Policy making SI
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Participation in policy making processes
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Intercompany transaction Control and SI
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Material intercompany transactions.
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Interchange of mgmt
control |
Ability to change top level management
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Interchange of mgmt
SI |
Ability to influence changes to top level management
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Accounting for Significant Influence
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Equity method
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Accounting for control
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Acquistion method with consolidation.
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Equity Method single line
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25% Assets
25% liabilities = 25% Equity |
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Consolidation
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100% Assets
100% liabilities <nci> |
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purchase price does not equal book value. Why?
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- Fair value of individual assets and liabilities different than book value
- Fair value of shares may be greater than fair value of net assets goodwill exists - goodwill- value of intngible favourable characterisc. |
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Mechanics of equity method calculation
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Price paid
- Investors share of book value of investee net assets acquired = Purchase premium - fair value differentials + deferred income taxes on fair value value differentials = goodwill |
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add or substract from purchase premium?
FV > Book |
Deduct
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Add or Subtract FV differentials from purchase premium?
Fair value < book value |
add.
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When using equity method.
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Equity income is calculated as follows:
Investor’s share of Investee’s reported net income $ xxxxx Current period amortization of fair value differentials (xxxx) Deferred income taxes on current period amortization of FV diffs xxxxx Current period GW impairment loss (xxxx) Current period inter-company profit or loss elimination xxxxx Deferred income taxes on current period interco profit or loss elimination (xxxxx) Equity Income $ xxxxx |
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Equity pickup is determined as follows.
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RE since acquisition $ xxxxx
Amortization to date of fair value differentials (xxxx) Deferred income taxes on amortization to date of FV differentials (xxxx) Goodwill impairment loss to date xxxx Unrealized intercompany gains or losses (xxxx) Deferred income taxes on unrealized intercompany gains or losses (xxxx) Equity pick–up $ xxxxx |
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Investment account balance
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Original cost $ xxxxx
Equity pick-up xxxxx ______ Investment account balance $ xxxxx |
