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Question 1

Parent Company

Answer 1

A parent company is a corporation that owns a significant interest in another company (typically more than 50%) sufficient to influence and control said company.

Question 2

Subsidiary Company

Answer 2

A subsidiary company is a company that is controlled by another corporation.

Question 3

How do consolidated financial statements differ from the financial statements of a single company?

Answer 3

Consolidated financial statements combine the balance sheets, income statements, and cash-flow statements of a parent company
with those of its subsidiaries as if the parent and its subsidiaries were one company.

Question 4

What is goodwill, and how does it arise? Which company reports goodwill, the parent
or the subsidiary? Where is goodwill reported?

Answer 4

Goodwill is an intangible asset. Goodwill is the excess of the purchase price to acquire a subsidiary company over the sum of the market value of the subsidiary’s net assets (assets minus liabilities).
Only the parent company reports the goodwill.
Goodwill appears as an intangible asset on the consolidated balance sheet.

Question 5

What is non-controlling interest, and which company reports it, the parent or the subsidiary?
Where is non-controlling interest reported?

Answer 5

Non-controlling interest is the portion of a subsidiary’s shares that is not owned by the parent company.
The parent company reports non-controlling interest on its consolidated balance sheet among the shareholders’ equity.”

Question 6

3 Types of investments classifications and methods to calculate

Answer 6

Financial Asset (0-20)
Financial Instruments Accounting

Associate (20-50)
Equity Method

Subsidiary (50-100)
Consolidate

Question 7

Financial Assets measurements (balance and income statement)

Trading securities
Loans and Receivables and Held-to-maturity
Available for sale

Answer 7

Trading securities
Fair market value
Change in fair value as income

Loans and receivables and held-to-maturity
Amortized cost
Change in value due to amortization

Available for sale
Fair Market value
Change in fair values as other comprehensive income

Question 8

Contingent Liabilities vs Provisions

Answer 8

Contingent Liabilities = only in notes

Provisions (warranty repairs) = Report on balance sheet with best estimate

Question 9

Market value of bond increase/decrease towards face value based on premium/discount

Answer 9

If premium = decrease

if discount = increase

Question 10

Leases - Operating vs Capital
Definition

Conclusion

Capital increases debt ratio, so operating lease is prefered

Answer 10

Capital - Renter takes risk/ownership/uses for longer

leased asset + leased liability part of balance sheet
lease liability decrease with lease payments
increases debt ratio

Operating - 
Write off lease expense as expense
Do not record lease on balance sheet
future payments not recorded as liabilitiy
Disclose rent payment in notes

Question 11

Debt ratio formula

Answer 11

Total liabilities / total assets

Question 12

times interest earned ratio

Answer 12

operating income / interest expense

Question 13

ROA formula

Answer 13

Net income / total asset

Question 14

Equity ratio

Answer 14

Equity / Total asset

Question 15

Defined Contribution arrangement
vs
Defined Benefit Arrangement

Answer 15

Stock market invest

Fixed guarantee

Question 16

Two criteria for restructuring provisions

Answer 16

1. Detailed Plan

2. Valid Expecations

Question 17

Onerous contract

Answer 17

unavoidable costs of meeting the obligations under the contract exceed the economic benefit received

Question 18

unavoidable cost

Answer 18

least net cost of existing from the contract
lower of
1. cost of fulfilling
2. penalties from not fulfilling