FAR 42 - VIEs and IFRS Business Combinations Flashcards Preview

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Flashcards in FAR 42 - VIEs and IFRS Business Combinations Deck (13):
1

Which of the following statements concerning the primary beneficiary of a variable-interest entity is/are correct?

I. The primary beneficiary has the ability to direct the most significant economic activities of the variable-interest entity.
II. Only one entity can be the primary beneficiary of a variable-interest entity.
III. The investor that has the greatest equity ownership in a variable-interest entity will be the primary beneficiary of the entity.

I and II only. By definition, the primary beneficiary of a variable-interest entity is the entity that is able to direct the most significant economic activities of the variable-interest entity (Statement I). Only one entity can be the primary beneficiary of a variable-interest entity, because only one entity will have the ability to direct the activities of the variable-interest entity that most significantly impacts its economic performance (Statement II).

2

In which one of the following cases is the subsidiary most likely to be reported as an unconsolidated subsidiary?
A. The subsidiary is in an industry unrelated to the parent.
B. The subsidiary has a fiscal year-end that is one month different from the parent's year-end.
C. The subsidiary is in legal bankruptcy.
D. The subsidiary has a controlling interest in another entity.

C. When a subsidiary is in bankruptcy, it is under the control of the bankruptcy court and, therefore, not under the control of the parent. When a parent cannot exercise financial and/or operating control of a subsidiary, the subsidiary would not be consolidated, but would be reported as an unconsolidated subsidiary by the parent.

3

Which one of the following is not a characteristic of a variable-interest entity?
A. A variable-interest entity is thinly capitalized.
B. The equity holders in a variable-interest entity control the entity.
C. The risks and rewards associated with a variable-interest entity mostly accrue to the variable-interest holders.
D. The value of a variable-interest entity depends on the net asset value of the variable-interest entity.

B. The equity holders in a variable-interest entity do not control the entity. Control of the activities and decision-making in a variable-interest entity generally resides with the variable-interest holders (not the equity holders) as established by agreement or other instrument.

4

T/F: A subsidiary that is not consolidated for an appropriate reason is not shown on the parents' financial statements.

False.
If either of the following relationships exist, will determine if they need to be consolidated or not.
1) if it is a (VIE) and, if so, the primary beneficiary of the VIE
2) if the entity is not a VIE, whether or not an investor has equity ownership that enables it to exercise control of the investee.

5

T/F: Variable-interest entities and special-purpose entities have the same general characteristics.

True

6

T/F: By definition, a variable-interest entity is a thinly capitalized entity.

True

7

T/F: Consolidated statements can be required as a result of control through a contractual arrangement.

True

8

T/F: The value of a variable-interest entity (VIE) to variable-interest holders increases and decreases with changes in the net asset value of the VIE.

True

9

T/F: The primary beneficiary of a variable-interest entity will consolidate that entity.

True

10

Under IFRS which of the following would not be recognized as part of a business combination.
A. Contingent asset.
B. Contingent liability.
C. Goodwill.
D. Fair value of the consideration transferred.

A. Under IFRS, contingent assets are not recognized. Under U.S. GAAP, contingent assets are recognized if the item meets the criteria of the definition of an asset.

11

T/F: ASC 805, "Business Combinations," and IFRS #3, "Business Combinations," have highly similar, but not completely identical, requirements in accounting for business combinations.

True

12

Under IFRS, goodwill is allocated to _________?

Cash generating units

13

Under IFRS, are you required to disclose assumptions related to acquired contingences?

Yes, you are required to disclose these assumptions.

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