Accounting Case 09-3 Essay
Provided Case 09-3, we, Group 7 have dutifully researched the topic, using resources at our disposal to formulate a consistent, clear and legal response. The following submission outlines the case, our conclusions with supporting evidence and the accounting issues present in the subject.
Case 09-3: Venturing into Consolidation details the ongoings and pertinent information of the joint venture of DeviceCo, and Pharmador branded LeaseMed. The joint venture LeaseMed has been created to operate as a medical equipment leasing entity. The joint venture is overseen by a board of directors composed of six members with three representatives from both parent companies. The joint …show more content…
Analysis: As of June 30, 2010 Pharmador has contributed 45% of equity and DeviceCo has contributed 55%. Pharmador does not meet this criterion while DeviceCo does.
4. The activities of the VIE are related to securitization, asset backed financings, or single-lessee leasing arrangements.
Analysis: LeaseMed does meet this criteria since it does not conduct activities related to the above categories.
The above analysis indicates that DeviceCo would not qualify for the business scope exception as a result of DeviceCo providing more than half of LeaseMed’s equity. However, Pharmador does not meet this criteria nor any other criteria in ASC 810-15-17(d) and therefore qualifies for the business scope exception. Issue II:
Does LeaseMed have sufficient equity to finance its activities without additional subordinated financial support? On the basis of the answer, is LeaseMed a VIE?
Disqualifying for the business scope exception would initiate further analysis to determine if DeviceCo has a variable interest in LeaseMed. ASC 810-10-20 defines variable interests in a VIE, in part, as “contractual, ownership, or other pecuniary interests in a VIE that change with changes in the fair value of the VIE’s net assets exclusive of variable