Financial 3 (Marketable Securities & Business Combinations)

MARKETABLE SECURITIES Classifications Trading Securities (current assets) o Securities (debt & equity) that are bought and held principally for the purpose of selling them in the near future Available for Sale Securities (non-current assets) o Securities (debt & equity) not meeting other 2 classifications (trading or held to maturity) Held to Maturity Securities (non-current asset) o The corp. has positive intent and ability to hold these securities to maturity Valuation Unrealized G/L trading securities o Included in earnings (I/S I D E A) o Reported at FV Unrealized G/L Available for Sale Securities o Included in OCI (OCI P U F E) o Reported at FV Transfer Between Categories

Sale of Securities (I/S Journal Entries)

BUSINESS COMBINATIONS / CONSOLIDATIONS Consolidated F/S Ignore important legal relationships Economic substance > Form Not an economic truth but legal fiction Degree of Control

A) Cost Method (FV, AFS method)

< 20% / Does not exercise significant influence

B) Equity Method

20-50%, exercise significant influence

Premium Paid

C) Consolidated F/S No Consolidating: o 1) The subsidiary is in legal reorganization, or o 2) Bankruptcy and/or the subsidiary operate under severe foreign restrictions B/S & I/S o Combined F/S do not eliminate equity accounts (they are added across) o All other intercompany transactions and balances are eliminated in combined F/S just as they are in consolidated F/S Goodwill o Partial Method (IFRS) Use FV of subs net identifiable assets

NCI = FV of net identifiable assets x X% Goodwill = Investment in Sub (FV of net identifiable assets x X%) o *Partial and full method only differ when parents owns < 100% of the sub* o Full Method (IFRS, like GAAP) Goodwill = FV of the Sub FV of Subs Net Assets (IFRS): Must Consolidate its investments unless following conditions are met: o 1) Parent company is itself a wholly owned subsidiary, or is partially owned subsidiary of another entity and the other owners do no object to the parent not presenting consolidated F/S o 2) Parent company is not publicly traded and is not in the process of issuing securities in a public market o 3) Ultimate of any intermediate parents of the parent company produces consolidated F/S in compliance w/ IFRS Acquisition Method

Consolidating Working Papers

NOT consolidation a majority owned Sub o When the subsidiary is in legal reorganization or bankruptcy and/or the subsidiary operated under severe foreign currency exchange restrictions, controls, or other governmentally imposed uncertainties, so severe that they cast significant doubt on the parents ability to control the subsidiary

VARIABLE INTEREST ENTITIES (V.I.E.) Have < 50% ownership, but: o 1) Has power to direct activities o 2) Has access to losses and profits