COST - No significant influence 50%

Chapter 3 Flashcards by Rachelle Yalung

Marketable Securities

Trading - FV - Unrealized G/L (I/S)
Avail for Sale - FV - Unrealized G/L (OCI)
Held to Maturity - Amortized Cost

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Avail For Sale IFRS

Foreign Exchange G/L on Debt AFS - I/S

Foreign Exchange G/L on Equity - OCI

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Realized losses on AFS in I/S

Sale
Transfer to Trading
Impairment

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Transfer to and from Trading

I/S @ FV

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G/L on Hedge

I/S

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Impairment

Avail for Sale - I/S (Recovery to OCI)

Held to Maturity - I/S (No recovery)

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Sale of Avail for Sale

Out of OCI, into I/S

Reverse unrealized G/L OCI

Record realized G/L I/S

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Business Consolidation

Economic substance over form

Do not consolidate if control is not with owners (legal reorganization, bankruptcy, with trustee)

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Different year-ends

US GAAP - 3 months or less, use Sub’s FY (disclose)

IFRS - adjust

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Levels of control

COST - No significant influence < 20%
EQUITY - With significant influence 20% to 50%
(Largest shareholder, majority of board)
CONSOLIDATE - With control >50%

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COST Method

Avail for Sale/FV Method

Mark to market
Investment adjusted for unrealized G/L
Dividend Income

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EQUITY Method - “Investment in Investee” B/S

Ignore FV
+ Share in earnings
- Share in dividends
- Amortization of FV Difference

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EQUITY Method - “Equity in Earnings” I/S

+ Share in Earnings

- Amortization of FV Difference

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Investment with C/S and P/S

Significant Influence - use C/S only

Income from Sub = P/F dividends + Share in Earnings avail for common shareholders (Net income - PF dividends)

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Equity Method

Unconsolidated Investment over 50%

Joint venture`

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Cost to Equity

IFRS - Prospectively
US GAAP - Retro Adjustment (Use Cost %)
- Reverse unrealized G/L in OCI the Ret Ear

ACQUISITION Method

Consolidate sub at 100% FV at acquisition date

Ret Ear, End adjust to Ret. Ear, Beg

CARINBIG

C/S Sub
APIC Sub
Ret Ear Sub
Investment in Sub
NCI
B/S adjusted to FV
Identifiable Intangibles to FV
Goodwill/Gain

Acquisition Expenses

Direct and Indirect - expensed
Stock related costs - APIC
Bond Issuance cost - capitalized and amortized

In-process R&D

Intangibles - if success amortize, expense if fail

NCI

Partial  =  FV of Sub's Net assets x NCI 
Full =  FV of Subsidiary x NCI %

Cash Flow - Period of Acquisition

Net cash acquired - Investing
(Acquisition cost paid - Sub’s cash)
A/L of sub added to A/L of parent

Cash Flow - Subsequent Periods

Exclude cash flow b/n parent and sub
Reconcile net operating income to consolidated income
Include dividends paid to NCI only
Include acquisition of addtl shares on open market - investing

Consolidation and Deconsildation

Non-control to Control (Step)
- Adjust previous C/S to implied FV
- G/L on I/S
Control to Control
- No G/L, APIC adjustment
Control to Non-control
- Sale G/L to I/S
- Adjust remaining C/S to FV to I/S

Intercompany transactions - Eliminate 100% even with NCI - Do not eliminate if not consolidating

1. B/S - Interco payables and receivables - Gain on inventory and fixed asets - Bonds & Prem/Disct with Investment 2/ I/S - Interco Sales and COS - Interest exp and income - G/L on sale, depreciation exp

Elimination Entry - INVENTORY

Dr Interco Sales Dr Retained Earnings (Interco profit in Beg. Inv) Cr Interco COS Cr Ending Inventory (Interco profit in End Inv) Cr Cost of Goods Sold (Interco profit in COS)

Elimination Entry - Bond Transactions

Dr Bonds Payable Dr Premium Cr Investment in affiliate bonds Cr Gain on extinguishment of bonds (or Loss)

Elimination Entry - LAND

Dr Interco Gain on sale of Land | Cr Land

Elimination Entry - PP&E

1. Eliminate Interco Gain Dr Interco Gain on sale of PP&E Cr PP&E Cr Accum Depr 2. Eliminate Excess Depreciation Dr Accum Dep Cr Dep Exp

Combined F/S

Common control Common management Uncosolidated subs

Combined F/S Transactions

Eliminate interco transactions NCI same as consolidated F/S C/S, Ret Ear and I/S added accross

Push Down Acctg | SEC required for wholly ownedsub

A/L to FV @ acquisition date Ret Ear of sub transferred to paid in capital Net Inc of each sub includes dep, amort and interest exp at FV