F3 Flashcards
(35 cards)
On the Balance sheet, marketable securities classified as HTM are valued at
AMORTIZED COST
On the balance sheet, marketable securities classified as trading or available for sale are valued ..
At FAIR VALUE
How are unrealized gains and losses on trading securities recognized?
Recognized on the income statement
How are unrecognized gains & losses on available for sale securities recognized?
Unrealized G/L on AFS securities are reported in OCI.
Under IFRS - foreign exchange gains & losses on AFS debt securities are reported on the IS.
When is the cost method of accounting for investments used?
The cost method also known as the FV method is used when investor owns less than 20% of the investees voting stock and does not exercise significant influence. Lacking evidence to the contrary - it is assumed that no sig influence can be excersied between 0-20%. The original investment under cost method is accounted for in the same manner as marketable equity securities.
List three conditions when losses on marketable securities classified as AFS are recognized in income.
Sale of security. Transfer of the security to trading classification. Other than temporary decline of the individual security below cost (impairment)
How are dividends distributed by the investee treated by the investor receiving them?
Stock dividend issued by the investee are not recognized by the investor. Cash dividends received by the investor are accounted for as dividend income.
When a marketable equity security is transferred from trading to AFS or vice versa what cost is it transferred?
Transferred at FV which then becomes new basis. for securities transferred into trading the diff is treated as a realized g/l and is recognized on IS. For a security transferred from trading category the unrealized holding gain or loss will already have been recognized in earnings. Transfers to and from the trading category should be rare.
How are gains and losses on financial instruments that hedge trading securities reported?
Reported in earnings, consistent with reporting unrealized gains and losses on trading securities.
How are gains and losses on financial instruments that hedge AFS securities reported?
Reported in earnings together with the offsetting gains and losses on the AFS securities attributable to the hedged risk.
What disclosures should be made for AFS and HTM securities?
Aggregate FV, Gross unrealized holding gains/losses, Amortized cost basis by type, Information about the contractual maturity of debt securities.
State the criteria to consolidate subsidiaries
Consolidate when the parent is able to control the subsidiary. Usually this is indicated by greater than 50% ownership of the voting stock of the subsidiary. Do NOT consolidate when control is not with owners (as in bankruptcy of subsidiary)
Identify the three levels of control and the appropriate accounting method for each.
No significant influence - cost method - trading / afs at fv.
Significant influence but 50% or less ownership - equity method
Control - Cost or equity method (internal acctng) Consolidated financial statements (external reporting)
How is the year-end “investment in investee” reported on the balance sheet calculated under the equity method?
Beginning investment in investee + Investors share of investees earnings - Investors share of investee dividends - Amortization of FV differences = Ending investment in investee.
How is an investors equity method investment reported on the income statement?
Investors share of investees earnings - amortization of FV differences = Equity in earnings / investee income.
How are joint ventures accounted for under IFRS and US GAAP?
Joint Ventures are accounted for using the equity method under both GAAP & IFRS.
In a step acquisition what is the accounting treatment when significant influence is acquired?
Going from the cost method to the equity method is handled like a change in accounting principle - applied retroactively. Go back retroactively with the equity method but not with the new ownership percentage. Prior period financial statements are restated.
When are consolidated statements prepared?
When the parent company has control over the subsidiary company. Control is achieved when more than 50% of the voting stock of the subsidiary is owned directly or indirectly by the parent and no other factors are present that would indicate a lack of control (bankruptcy reorganization).
In acquisition accounting, state the consolidating work paper elimination entry. CARINBIG
Dr. CS / Subsidiary Dr. APIC - Subsidiary Dr. Retained Earnings - Subsidiary Cr. Investment in subsidary Cr. Non controlling Interest Dr. BS Adjustment to FV Dr. Identifiable intangible assets to fair value Dr. Goodwill
How are expenses relating to the combination treated under the acquisition method?
Direct out of pocket costs are expensed. Stock related costs are a reduction in value of the stock issued (normally a debit to additional paid in capital) Indirect costs are expensed. Bond issue costs are capitalized and amortized.
In an acquisition, how are acquired identifiable intangible assets amortized?
Finite life - amortize to residual value over expected useful life.
Indefinite life - Do not amortize.
How is goodwill calculated under the US GAAP acquisition method?
US GAAP - Goodwill is the excess of the fair value of the subsidiary (acquisition cost + NCI) over the fair value of the subs net asset including intangible assets at FV. Goodwill = FV of subsidiary - FV of subsidiarys net asset. Goodwill recorded in a business combo is not amortized. The entire investment is subject to the impairment test.
How is the goodwill calculated under the IFRS acquisition method?
Goodwill is recognized using the full goodwill method (same as US GAAP) or partial goodwill. Under partial goodwill method, goodwill is the excess of the acquisition cost over the FV of the subs net assets acquired. Partial goodwill = Amortization cost - FV of subsidiary’s net assets acquired.
How is Noncontrolling interest (BS) calculated under US GAAP?
Noncontrolling Interest (NCI) = FV of subsidiary x NCI%
