ACTG 6160 Study Guide - Winter 2018, Comprehensive Midterm Notes - Wireless Access Point, Small Form-Factor Pluggable Transceiver, Sierra Entertainment
12 Oct 2018
School
Department
Course
Professor
ACTG 6160
MIDTERM EXAM
STUDY GUIDE
Fall 2018
Week 1: Advanced Financial Accounting
Equity Investments
• FVTPL and FVOCI
• Above the line and below the line
o the line = net income
• Dividends are part of net income
• Gains are part of OCI
• IFRS 9 replaced IAS 39
• Clean surplus accounting
o every other change in equity has to flow through net income
• Available for sale securities: gains to be recycled back into net income
• To mitigate income smoothing, standards have changed from available for sale to FVOCI
(IAS 39 to IFRS 9)
• Not to be tested on IAS 39, only IFRS 9
• FVTPL
o dividends
o change in value of equity
o types of institutions: investments
• Associated costs (i.e. brokerage costs)
o under FVTPL: expensed
o under FVPOCI: included as part of the cost of the investment
Strategic Investments
• Associated companies: not enough to have control
• Joint ventures
o joint control: don’t have sole control
o equal partners pooling resources to do something together
• SPEs and SEs
o move from IAS 27 to IFRS 10
o IAS 27: focused on subs and SEs, and focus on benefits
o IFRS 10: irrespective of whether it is a sub or SEs, and not focused on profits
▪ power over the investee
• share ownership
▪ exposure, or rights, to variable returns from involvement with the
investee
▪ the ability to use power over the investee to affect the amount of the
investor’s return
• Bank will create a SE but has limited ownership in it
o 3% equity financing
o 97% debt financing
o low percentage of equity is owned by the bank
find more resources at oneclass.com
find more resources at oneclass.com
o bank provides mortgage to SE and SE will repay the mortgage from funds from
investors
o mortgage backed securities
o who owns the SE based on who receives the risks and rewards?
o if the SE goes belly up, then the bank bears the risk
Joint Venture/Arrangements
• Joint operation: no need for control, just concerned with the splitting of the profits,
individual partners pay their own debts, no rights or claim over each other’s assets and
liabilities
• Joint Venture: only have rights over the returns generated from the venture
o no one has a claim over the individual assets or liabilities
o problem with proportionate consolidation: only have claim based on your share
of the joint venture
o equity method
• Entity theory and proprietary theory
Investments in Associates
• Equity method; same application as with joint ventures
• Apply the proprietary theory
Consolidation and equity method result in the same bottom line if the adjustments you have to
make impact net income.
Recording vs Reporting
• Cost method of recording
o keeping the value of the investment at cost
• Adjustments need to be made: memoranda adjustments
• Have to adjust for the adjustments
• Cannot record consolidation adjustments on the books (i.e. intercompany transactions)
• Example
o husband and wife have a joint venture
o wife lends money to husband
o they both go to bank for loan
o bank sees them as 1, not 2
o bank does not care about the wife lending to husband
o hence the reason for elimination of intercompany transaction
find more resources at oneclass.com
find more resources at oneclass.com
Document Summary
Equity investments: fvtpl and fvoci, above the line and below the line, the line = net income, dividends are part of net income, gains are part of oci. Strategic investments: associated companies: not enough to have control. Joint ventures joint control: don"t have sole control: equal partners pooling resources to do something together, spes and ses, move from ias 27 to ifrs 10. Ias 27: focused on subs and ses, and focus on benefits. Joint operation: no need for control, just concerned with the splitting of the profits, individual partners pay their own debts, no rights or claim over each other"s assets and liabilities. Investments in associates: equity method; same application as with joint ventures, apply the proprietary theory. Consolidation and equity method result in the same bottom line if the adjustments you have to make impact net income. These adjustments are not recorded anywhere; they are only to be found in the working papers.
