two key terms for held to maturity
*positive intent and ability to hold to maturity
Type of gain/loss not reported for AFS securities in OCI under IFRS
*foreign exchange gains and losses on AFS DEBT securities
Cash flow designation for trading securities
*usually operating but could be investing
Reclassification of Securities
- From Trading Category
- To Trading Category
- Debt Security HTM to AFS
- Debt Security AFS to HTM
- nothing changes
- unrealized gain/loss is recognized in earnings immediately
- unrealized holding gain/loss will be reported in OCI
- unrealized gain/loss will be amortized over the remaining life of the security
OTT Losses
*reported in earnings in the current period
Two types of gains/losses reported on income statement
- realized gains
- unrealized gains
*don’t think that realized gains includes all gains/losses on I/S
Can companies consolidate with different year ends?
*yes, if it is disclosed (GAAP) or adjusted (IFRS) and does not exceed three months (GAAP)
Special Considerations for Cost Method
- adjust to FV
- reduce investment for RETURN OF CAPITAL DISTRIBUTIONS (in excess of R/E only)
* only dividend income up to the point where it does not exceed Retained Earnings
Key for Determining Equity or Cost Method
- is there an ability to exercise significant influence?
- it could be less than 20% but still use the equity method
- largest shareholder or majority of the board
- determined using common stock
How are joint ventures usually accounted for?
*equity method
What must be done for a step-by-step acquisition? (to equity from cost)
*retrospective adjustment to R/E
Two situations where subsidiary would not be consolidated
- legal reorganization
2. bankruptcy or severe foreign restrictions
At what FV % do you consolidate at?
100%
Mneumonic for Consolidations
C ommon stock A PIC R etained Earnings I nvestment N on-controlling interest B alance sheet adjusted to FV I dentifiable intangible assets are recorded at FV G oodwill
IN = CAR BIG
Treatment of Following Expenses: Finder's Fee or Legal Fee Stock registration and issuance fees Indirect costs Bond issue costs
- expensed
- decrease cash and APIC
- expensed
- capitalized and amortized
When accounting for a business combination as an acquisition, debit ___________
Investment in Subsidiary (not the individual assets and liabilities)
NCI Equation
Beginning NCI
+ % subsidiary NI
- % subsidiary dividends
= Ending NCI
In Process R&D
success –> amortize
failure –> impair/write-off
Items to Eliminate for Intercompany Transactions
DR: Revenue
CR: COGS (parent)
CR: Inventory
CR: COGS (subsidiary)
DR: A/P
CR: A/R
How to Reverse Intercompany Transactions Dealing with Inventory
Inventory sold to oustiders: correct COGS
Inventory still on hand: correct ending inventory
When eliminating intercompany bond transactions, how should the transaction be treated?
- treat it as though the bonds are being retired
* this means that a gain or a loss may occur
How to Reverse Intercompany Profit on Depreciable Fixed Asset
- restore asset to original cost (DR or CR)
- book original accumulated depreciation
- back out the gain or loss (adjustment to R/E in subsequent years)
*decrease accumulated depreciation and depreciation expense over time for the amount in excess each year
