Other Consolidation Reporting Issues: Solutions Manual, Chapter 9 1

Chapter 9
Other Consolidation
Reporting Issues
Copyright  2016 McGraw-Hill Education. All rights reserved.

Solutions Manual, Chapter 9 1
A brief description of the major points covered in each case and
problem.
CASES
Case 9-1
In this case, the student must determine how to report two investments. One investment is
subject to joint control and should be accounted for as a joint venture. The other investment is
subject to control through means other than voting shares and should be accounted for as a
controlled special purpose entity.
Case 9-2
In this case, the company plans to set up a controlled special purpose entity (SPE) to renovate
its manufacturing plant and record a gain on the transfer to the SPE. The student is asked to
discuss the accounting issues for the proposed transactions.
Case 9-3
This case, adapted from a CPA exam, involves a joint venture. Parties to a joint venture are
disputing charges by other venturers to the joint venture and accounting policies for the joint
venture. The CPA, as arbitrator, must resolve the issues.
Case 9-4
This case involves a discussion of the factors to be used in determining whether a particular
country is material and should be disclosed separately.
Case 9-5
This case, adapted from a CPA exam, involves an unincorporated joint venture in the computer
graphics and animation industry. You are asked to prepare a report regarding accounting issues
for financial statements that involve special accounting policies, which are not in accordance
with GAAP. The accounting issues include valuation of all assets and liabilities at fair value,
revenue recognition, related party transaction and consideration received for option to buy
additional shares in the entity.
Case 9-6
This case, adapted from a CPA exam, involves an investment in an incorporated joint venture in
the property development industry. You are asked to prepare a report regarding accounting

2 Modern Advanced Accounting in Canada, Eighth Edition
issues, which include contributions to a joint venture, revenue recognition, related party
transaction, betterments and reserve fund for future maintenance costs.
PROBLEMS
Problem 9-1 (25 min.)

This problem involves the preparation of a consolidated balance sheet at the date of acquisition
for a VIE under 3 different values attributed to the non-controlling interest.

This problem requires the calculation of the acquisition differential (AD) and subsequent
amortization for an 80%-owned subsidiary when there is an unrecognized loss carry-forward and
deferred income tax on temporary differences. It also requires a calculation of non-controlling
interest along with an explanation as to why the AD gives rise to a deferred income tax liability.

The student is asked to prepare a consolidated balance sheet immediately after acquisition for a
parent and its 100%-owned subsidiary where there are deferred tax complications and to prepare
an acquisition differential amortization and impairment schedule involving deferred taxes.

This problem is the same as Problem 5 except the subsidiary is 60%-owned. A consolidated
balance sheet is required immediately after acquisition, and there are deferred tax complications.
The problem also requires the calculation of goodwill and non-controlling interest under the parent
company extension theory and an explanation as to how the definition of a liability supports the
recognition of a deferred tax liability.

This is a complex problem involving the preparation of a consolidated statement of financial
position for a primary beneficiary and a VIE five years after the date of acquisition. It involves
negative goodwill and amortization of the acquisition differential. It also requires an explanation of
how the definition of a liability supports the inclusion of the VIE’s liability on the consolidated
balance sheet.

Proportionate consolidation is required to prepare a revised statement of financial position and
income statement for the joint operation of a home renovation activity.

The student is asked to identify which segments should be reported from a list. The revenue test,
operating profit test, and asset test must be performed.

The student answers a series of questions based on the 2011 financial statements of Rogers
Communications Inc., a Canadian company. The questions involve analysis and interpretation of
segment reporting information disclosed in the company’s financial statements

A consolidated balance sheet is required for an investor and its two investees under two scenarios
- 1) where the equity method is used to account for a joint venture and 2) where proportionate
consolidation is used to account for the joint venture.. Preferred shares and unrealized profits in
inventory are also involved.

This problem requires the preparation of a company's income statement under the assumption
that its 40% investment in another company is either (a) a joint venture or (b) a significant
influence investment.

A year's equity method journal entries involving unrealized profits in opening and closing
inventory and equipment profits are required under the assumption that the investee is (a) a
subsidiary, and (b) a joint venture.

This problem involves the journal entries required for an investment of nonmonetary assets in
the formation of a joint venture. The investor receives an equity interest plus cash.

This problem requires an income statement under the equity method if the investee is a joint
venture and unrealized gains are involved. A second part requires the calculation of
consolidated net income assuming the investee is a subsidiary.

This problem requires the preparation of journal entries under the equity method for a venturer
who has contributed assets at a gain for an interest in a joint venture. Finally equity method
entries are required for the case where the venturer receives cash back from the assets
contributed for an interest in a joint venture.

This problem requires the preparation of a balance sheet for a company with a 40% interest in
another company under three assumptions: (a) control exists, (b) the investment is a joint
venture, and (c) it is a significantly influenced investment. It also involves a calculation and
interpretation of the debt to equity ratio under the three assumptions. The date is five years
after acquisition and there are intercompany profits and balances.
SOLUTIONS TO REVIEW QUESTIONS

1. Both the subsidiary and the controlled special purpose entity (SPE) are controlled. The
subsidiary is controlled by the parent whereas the SPE is controlled by the sponsor. The
main difference is the way in which the SPE is controlled. The parent typically controls the
subsidiary by owning the majority of the voting shares of the subsidiary. The sponsor
controls the SPE through governing agreements and can have this control without owning
any of the voting shares of the SPE.
2. Assets and liabilities should be presented on a balance sheet if they meet the definition of
assets and liabilities. Assets are economic resources controlled by an entity as a result of
past transactions or events and from which future economic benefits may be obtained. A
sponsor controls a special purpose entity (SPE), and therefore indirectly controls the
economic resources of the SPE and receives the majority of the future economic benefits.
Liabilities are obligations of an entity arising from past transactions or events, the settlement
of which may result in the transfer or use of assets, provision of services or other yielding of

economic benefits in the future. The sponsor indirectly takes responsibility for the majority
of the risk related to the obligations of the SPE.
3. To account for its interest in a joint operation, the joint operator should recognize:
(a) its share of any assets held jointly;
(b) its share of any liabilities incurred jointly;
(c) its share of revenue arising from the sale of the output arising from the joint operation;
(d) its share of the revenue from the sale of the output by the joint operation; and
(e) its share of any expenses incurred jointly.
4. Normally, a 62% interest in the voting shares of a company would be sufficient for control to
exist, and therefore Z would be a subsidiary. But, there could be an agreement between Y
Company and the investors who hold the other 38% that does not give Y control over Z
Company. The agreement could give joint control to Y and one or more of the other
shareholders. In this situation, Z would not be a subsidiary; rather, it would be a joint
venture. Or, there could be an agreement between the shareholders and another party
whereby the shareholders have given control of the company to another party in return for a
guaranteed return on their investment.. In this case, Y may have to report the investment
using the equity method if it had significant influence or at fair value if it did not have
significant influence.
5. In a parent–subsidiary affiliation, 100% of intercompany inventory profits are eliminated. If

the parent was the selling company, the elimination is entirely allocated to the parent. If the
subsidiary was the selling company, the elimination is allocated to the parent and the non-
controlling interest. In a venturer–joint venture affiliation, only the venturer's share of the
intercompany profit is eliminated, regardless of which party was the selling company. If the
joint venture was the selling company, there is no non-controlling interest to make an
allocation to. If the venturer was the selling company, the venturer realizes a portion of the
profit equal to the interest of the other venturers, provided that they are not related to the
venturer.
6. The investment is recorded at the fair value of the nonmonetary assets transferred. The gain
is split between the amount represented by the interests of the other nonrelated venturers
and the amount represented by the venturer's own interest. The amount pertaining to the

other venturers’ interests is recognized in income immediately if the transaction has
commercial substance. If not, the amount is brought into income over the life of the asset.
The amount pertaining to the venturer’s own interest is brought into income over the life of
the asset if the asset is being used to generate a profit for the venturer.
7. The revenue recognition principle states that revenues and gains should be recognized
when they are realized i.e., when a transaction has occurred with an outside entity and
consideration is received. For transactions between a venturer and the joint venture, the
portion of the gain equal to the outside interest in the joint venture is considered to be
realized because the other parties in the joint venture are not related to the venturer and are
considered to be outsiders.
8. The fact that the fair values of Y's assets exceeded their tax bases on the date that X
Company acquired control over Y will have the following impact on the consolidated balance
sheet:
a. A deferred tax liability will be determined for the difference between the fair value
and the tax bases of Y's net assets. The difference between this deferred tax liability
and the amount already reported on Y’s separate-entity balance sheet would be
included in the allocation of the acquisition differential.
b. As a result of (a), goodwill will be different than it would have been if Y's assets
had fair values equal to their tax bases.
c. The deferred tax liability determined in (a) will be disclosed on the consolidated
balance sheet and will be reassessed each year.
d. Finally, as a result of (a), the non-controlling interest on the consolidated balance
sheet will be different than it would have been if Y's assets had fair values equal to
their tax bases.
9. The parent company may be able to recognize its own unused income tax losses and those
of the acquired company at the date of acquisition if it can now meet the "probability" test for
these losses. This test may now be met because of synergies created by the combining of
the two companies. If this is so, this will result in deferred tax assets appearing on the
consolidated statements that were not on the separate-entity statements.

10. Temporary differences exist when the carrying amount of an asset or liability is different from
its tax base. A deductible temporary difference is one that can be deducted in determining
taxable income in the future when an asset or liability is recovered or settled for its carrying
amount. Deductible temporary differences exist when the carrying amount of an asset is less
than its tax base, or when an amount related to a liability can be deducted for tax purposes.
Deductible temporary differences represent a deferred tax asset to the company. A taxable
temporary difference will result in a taxable amount in the future when the carrying amount
of an asset or liability is recovered or settled and represents a deferred tax liability to the
company. A taxable temporary difference arises mainly when the carrying amount of an
asset is greater than its tax base.
11. A deferred tax asset would exist on a subsidiary's balance sheet if the subsidiary carried an
asset on its books at less than its tax base. If this same asset had a fair value that was
greater than the tax base, a deferred tax liability would be reported on the consolidated
balance sheet. The reason for the change is that the carrying amount of the asset on the
consolidated balance sheet has changed as a result of the acquisition transaction.
12. Since tax returns are filed for separate legal entities and not the consolidated entity, the fair
value excess in a business combination is not considered to be a deductible cost for tax
purposes. If the asset acquired in a business combination were subsequently sold at its fair
value, a gain would be reported for tax purposes at the subsidiary level and tax would be
assessed on that gain even though no gain may be realized from a consolidated point of
view. This deferred tax obligation is reported as a deferred tax liability on the consolidated
financial statements at the date of acquisition.
13. A company should report information about an operating segment that meets any ONE of
the following:
a. The operating segment's reported revenue (intersegment sales plus transfers,
plus external sales) is 10% or more of the combined internal and external revenue of
the company.
b. The absolute amount of the segment's reported profit or loss is 10% or more of the
greater of:
i. the combined reported profit of all operating segments that did not report a
loss

ii. the combined reported loss of all operating segments that did report a loss.
c. The segment's assets are 10% or more of the combined assets of the company.
14. The following information must be disclosed for each operating segment:
 factors used to identify the reportable segments
 types of products and services offered by reportable segments
 profit or loss
 total assets
 total liabilities if such amounts are regularly provided to the chief operating
decision maker
In addition, the following should also be disclosed if they are included in the measure of profit
or loss reviewed by the chief operating decision maker:
 external and intersegment revenue
 interest revenue and expense (separately)
 amortization and other significant noncash items
 unusual items
 equity in income of investees
 income tax expense or benefit
 amount of investment in investees subject to significant influence
 total expenditures for additions to non-current assets and goodwill
15. In addition to segmented information based on operating segments, the financial statements
must also disclose segmented information on an enterprise-wide basis. In other words, the
financial statements must provide segmented information regardless of whether there are
operating segments to report. Unless it is impractical to do so, the financial statements
should disclose the following:
 Information about external revenues, property, plant and equipment, and goodwill on
the basis of geographic areas.
 Information about external revenues on a product-by-product basis, or by each group
of similar products.
 If the company's revenue to a single external customer is 10% or more of total
revenue, the company must disclose this fact, the total amount of the revenue to that
customer, and the identity of the operating segment(s) reporting the revenue.

16. The following reconciliations are required for segment reporting:
(a) the total of the reportable segments’ revenues to the entity’s revenue.
(b) the total of the reportable segments’ measures of profit or loss to the entity’s profit or
loss
(c) the total of the reportable segments’ assets to the entity’s assets.
(d) the total of the reportable segments’ liabilities to the entity’s liabilities if segment
liabilities are reported separately
(e) the total of the reportable segments’ amounts for every other material item of
information disclosed to the corresponding amount for the entity.
17. The presentation of a measure of profit, revenue, and assets for each reportable segment
allows a statement user to calculate a measure of return on assets, margin, and turnover, so
that the relative contribution of each segment to the overall profitability of the company can
be assessed and compared with that of the previous year.
SOLUTIONS TO CASES
Case 9-1
(a)
Holdco’s 30% interest in Elgin Company should be reported using the equity method because
Elgin Company is a joint venture. Although Ms. Richer owns 70% of the common shares of
Elgin, he does not control Elgin. The shareholders’ agreement indicates that the two
shareholders must agree on all major operating and financing decisions. Therefore, the two
shareholders jointly control Elgin and Elgin should be accounted for as a joint venture.
According to IFRS 10, the equity method should be used to report an investment in a joint
venture.
Metcalfe Inc. should be consolidated with Holdco because Metcalfe is a controlled special
purpose entity and Holdco is the sponsor. Although Holdco only owns 40% of Metcalfe, it
controls Metcalfe because Mr. Landman, the sole owner of Holdco, is responsible for all key
operating, investing, and financing decisions. Furthermore, Holdco has the obligation to absorb
Metcalfe’s expected losses and the right to receive Metcalfe’s expected residual returns if they

occur.
(b)
Switching from the cost method to the equity method will have the following impact for the two
investments:
Investment in Elgin Company
- the debt-to-equity ratio will not change when the money is initially invested in Elgin
Company. If Elgin’s profits over time are greater than dividends paid, the equity method will
report higher income than the cost method. If so, the debt-to-equity ratio will be lower under
the equity method.
Investment in Metcalfe Inc.
- Debt will increase by $1,500,000 and equity will increase by $300,000, which is the fair
value of the Ms. Richer’s investment, which will be reported in shareholders’ equity as non-
controlling interest. . The incremental transaction has a debt-to-equity ratio of 5:1. Assuming
that Holdco’s debt-to-equity ratio is less than 3:1 prior to this transaction, the new acquisition
will cause the debt-to-equity ratio to increase.
- If Elgin’s profits over time are greater than dividends paid, the equity method will report
higher income than the cost method. If so, the debt-to-equity ratio will decrease over time
under the equity method.
Case 9-2
Memorandum
To: CFO
From: Consultant
Re: Accounting for Renovation of Manufacturing Facility
You have asked me to comment on the proposed accounting for the sale of the unrenovated
facility and subsequent repurchase of the renovated facility. My comments are presented below
along with supporting arguments.
First of all, I acknowledge that historical cost accounting prevents you from reporting the fair
value of the manufacturing plant and makes your debt-to-equity ratio appear to be very high at
4:1.

Under current accounting requirements, most entities would report their property, plant and
equipment at historical cost less accumulated amortization. However, an entity has an option
under IAS 16 to report its property, plant and equipment at fair value with any fair value
adjustment reported in other comprehensive income. These two methods are discussed in more
detail below.
Under the historical cost method, any appreciation in the value of the plant can only be reported
in income if the plant is sold to an outside entity. At first glance, it may appear that SPE is an
outside entity because Mr. Renovator who is not related to P Co. is the sole owner of SPE.
However, the substance of the series of transactions is that P Co. has retained the benefits and
risks of ownership of the plant and SPE is a related party as indicated by the following:
 SPE is indirectly controlled by P Co. because P Co. must approve all activities carried
out by SPE
 P Co. is paying $990,000 for the renovation of the plant. This price is expected to cover
SPE’s cost and provide a reasonable return to SPE. P Co. is, in effect, guaranteeing a
return to SPE. Mr. Renovator has little or no risk of incurring any losses in this venture.
 P Co. retains the right to receive the expected residual returns on the use and/or sale of
the manufacturing plant.
The returns expected to be received are disproportionate to the level of ownership in SPE i.e. P
Co. will receive most of the benefits and take on most of the risk even though P Co. does not
own any of the shares of SPE. On the other hand, Mr. Renovator is guaranteed a certain return
but cannot obtain more than the guaranteed amount even though he is the sole owner of SPE.
Under historical cost accounting, the entry to record the transfer of the plant to SPE should be
as follows:
Notes receivable from SPE 1,350,000
Unrealized gain 1,125,000
Manufacturing plant 225,000
The unrealized gain is a contra account to the notes receivable. Therefore, the notes receivable
would be reported at a net amount of $225,000 on the balance sheet at December 31, Year 5.
The debt to equity ratio would not change as a result of the sale of the plant to SPE.

When the plant is bought back on January 2, Year 6, the following journal entry would be made:
Manufacturing plant 1,215,000

Unrealized gain 1,125,000
Notes receivable from SPE 1,350,000
Cash 990,000
Therefore, the renovated manufacturing plant would be reported at its total cost of $1,215,000
($225,000 + $990,000). On January 1, Year 6, after P Co. repurchases the renovated plant
from SPE for $990,000 and SPE is wound up, the balance sheet for P Co. would appear as
follows (in 000s):
Manufacturing plant (225 + 990) $1,215

Other assets 2,025
$3,240
Bank loan payable $990

Other liabilities 1,800
Common shares 30
Retained earnings 420
$3,240
The debt to equity ratio would be 6.2 ([990+1,800] / [30+420]). Therefore, your proposed
transaction would not allow the asset to be reported at fair value. The asset would be reported
at 1,215. P Co.’s debt-to-equity ratio would be even higher than it was before.
If P Co. adopts the fair value option under IAS 16, the plant would be measured at fair value on
an annual basis. If the fair value of the unrenovated plant is $1,350,000 and if you were able to
report the plant at fair value, the debt-to-equity ratio would be 1.14:1 prior to the renovation and
1.77:1 after the renovation (as indicated by the various scenarios given in the case). However,
the fair value option must be applied consistently year after year. It cannot be applied at a single
point in time and then use historical cost accounting thereafter. Prior to changing to the
revaluation option, P Co. must consider whether the costs of revaluing to fair value on a periodic
basis are worth the benefits.
Case 9-3
ARBITRATION REPORT REGARDING ACCOUNTING POLICIES FOR TROPICAL JUICES

LIMITED (TROPICAL OR THE COMPANY)
Overview
As arbitrator, it is necessary for me to apply my professional judgment and to be objective in my

deliberation. There is no clear "right" or "best" solution for many of the issues in which there is
disagreement. Many of the recommendations that I make are necessarily disadvantageous to
one or more of the parties, since your objectives are in conflict. For example, both Citrus
Growers Cooperative (Citrus) and Bottle Juices Corporation (Bottle) will want to maximize their
charges to the joint venture, Tropical, in order to maximize their cash withdrawal from the
Company. In addition, the previous owners of Bottle will want to shuffle revenues or expenses
between years in order to minimize any payments to Douglas Investments Limited (DIL), as
required by the sale agreement of Bottle.
In order to avoid interpretation problems from occurring in the future, it is necessary for the
joint-venture agreement to be clarified. For example, it is necessary to clarify whether the 16%
charge that Bottle is permitted to charge Tropical is intended to represent interest, depreciation,
or both. Furthermore, it is not clear whether this rate is to be applied to the original cost, or the
net depreciated amount. Other vague terms in the agreement include "reasonable charges" and
"fair value." Clarifying these terms may mean rewriting the agreement, or at least drafting a
written addendum to the original agreement.
Interpretation of agreement
In order to ensure internally consistent reasoning on the issues presented, it is necessary to
clarify the intent of the agreement.
The agreement could be interpreted as a means of reimbursing each of the owners for their
transactions with Tropical. It would then be necessary to determine how to account for these
disbursements within Tropical's financial statements. These statements should be prepared in
accordance with generally accepted accounting principles (GAAP) for private enterprises as
required by the agreement.
Alternatively, the agreement could be interpreted as a means of dictating how the "net income"
of Tropical is to be determined in order for it to be distributed to each of the owners.

This latter alternative seems to be the likely intent of the agreement in view of its apparent
efforts to try to match charges to the revenues (such as the 16% charge). However, the first
alternative may be easier in implementing the agreement between DIL and the previous owners
of Bottle, since the statements of Tropical would not have to be restated in order to comply with
GAAP.
In analyzing each of the concerns you have presented to me, I have interpreted the agreement
as the latter interpretation - as a means of reimbursing the owners for their transactions with
Tropical. I have analyzed the accounting policies used by Tropical with reference to the joint-
venture agreement. DIL requires the accounting of Tropical to be in accordance with GAAP for
private enterprise in order to determine the payments, if any, required by the previous owners of
Bottle. Accordingly, I have indicated, where necessary, the adjustments that would have to be
made to Tropical's statements so that they are in accordance with GAAP for DIL's purposes.
Below I have addressed the concerns raised by each of you.
Concerns of Citrus
Charge for bottles
The full charge by Bottle for the returnable bottles it purchased on behalf of Tropical can be
considered appropriate, as it is a reimbursable disbursement in accordance with section 2(a) of
the agreement. However, this may not seem "fair" to Citrus because the benefit to be derived
from these bottles extends over two years. On the other hand, it may be "fair" to Bottle since it
had to finance the purchase in the current year.
However, the purchase can also be considered to be a capital investment, since the bottles
have a life extending beyond one year. In this case, Bottle should only be reimbursed at a rate
of 16% per year based on the cost of the bottles. Obviously, this alternative would not be "fair"
to Bottle since it has to disburse cash about every two years, yet Bottle is reimbursed over a
much longer period.
As a compromise between these two positions, it is recommended that the bottles be charged
in Tropical's statements over the two-year life of the bottles. Bottle should also be reimbursed at
a rate of 16% to reflect its interest cost. Note that I have assumed that the 16% charge allowed
by the agreement is intended to represent interest. If it does not, then a market interest rate
should be used.

Interest charge on machinery purchase
Whether or not Bottle can charge interest for the machinery purchased depends on the purpose
of the 16% charge allowed by the agreement. If this charge is supposed to represent interest,
then charging its own interest cost and 16% is double charging for the same item. In this case, I
recommend that Bottle be allowed to charge 16% of the cost of the machinery as interest and
no other interest.
Note that if the 16% charge is supposed to represent depreciation (contrary to my assumption),
then the interest charge by Bottle is appropriate since it was a disbursement made on behalf of
Tropical (section 2(a) of the agreement).
Training costs
The costs incurred by Bottle to train employees in the manufacturing and selling of Tropical
juices can be fully charged to Tropical in the current year in accordance with section 2(a) of the
agreement. Furthermore, if we assume that the benefit to be derived from this employee
training will not last beyond the current year, then charging the full amount in the current period
is appropriate since it reflects the cost of generating revenue in the current period.
If, however, we assume that these costs provide a benefit beyond the current year alone, then
the amount should be charged over the period during which the benefit would be derived. In
addition, Bottle would then be reimbursed the equivalent of 16% to reflect the interest on its
disbursement (or other interest amount if 16% does not relate to interest only).
I recommend that the full amount be reimbursed to Bottle in the current year since any
significant future benefit likely does not exist, and it would be very difficult to measure this
period of future benefit. It is likely that there is high staff turnover and job reassignment, given
the nature of the industry, and therefore training costs would continue to be incurred on an
ongoing basis.
Note that I have assumed that these training costs relate to Tropical's products only. If this is
not the case, then the cost should be apportioned between Bottle and Tropical, as required by
section 2(b) of the agreement.
16% capital charge
Citrus has expressed concern about the time from which the 16% charge is supposed to apply.
Although there are many alternatives as to when the 16% charge should apply, my

recommendation is based on the intent of this 16% charge. As previously mentioned, I have
assumed that the 16% charge is supposed to represent interest. Accordingly, the amount
should be charged from the date that Bottle purchased the machinery.
Citrus's concern may stem from the fact that charges are being made to Tropical even though
no revenues have yet been generated. In addressing this "mismatching" concern, we could
include this charge as part of the cost of the inventory that was produced. In this manner, the
amount would not be deducted from revenues until the inventory is sold, thereby matching
expenses to revenues. However, this argument could be applied to all the 16% charges that
could be made by Bottle, including those on training costs and bottles. In order to avoid such
arbitrary allocations, I recommend that this amount be expensed in the current period.
Computer charges
Citrus believes that Bottle should have charged Tropical for its computer services at its cost
rather than at the fair value of these services.
Although this charge is reimbursable under section 2(b) of the agreement, the amount is
uncertain because of the vagueness of the term "reasonable" in this section. "Reasonable"
could be interpreted to mean fair value. Since Citrus can charge Tropical fair value for juice
concentrates sold to Tropical, it can be inferred that Bottle should also be allowed to charge fair
value for its services.
"Reasonable" could also be interpreted to mean cost, whether it is an allocation of Bottle's cost
of the computer, or Bottle's incremental costs of providing the services.
I recommend that Bottle charge Tropical for its incremental costs of providing computer
services to Tropical. In this manner, Bottle would be reimbursed for its out-of-pocket costs in
providing this service. It appears that Bottle was already using a computer system for its own
transactions. This amount is a fixed cost - it is incurred regardless of usage. Therefore, Bottle
did not incur this charge on behalf of Tropical. Furthermore, I do not believe that a comparison
with Citrus's ability to charge fair value for juice concentrates is appropriate. Juice concentrates
are the primary business of Citrus. Under the agreement, Citrus is required to provide Tropical
with the necessary supply. Therefore, I assume that fair value was allowed in this instance so
that Citrus would not be financially hurt by capacity constraints that prevented it from supplying
its own customers. In comparison, computer services provided by Bottle are merely part of its
administrative support services.
Strike costs
Citrus is suggesting that Bottle reimburse Tropical for lost sales as a result of the nonavailability
of juices. I assume that Citrus's concern is not the lost sales due to the strike but the fact that
Bottle did not resume production of Tropical juices as soon as possible.
The agreement states that it is Bottle's responsibility to provide production facilities for Tropical
juices. Citrus could therefore argue that Bottle should reimburse Tropical for all lost profits as a
result of the strike.
This approach may seem unfair to Bottle given that a strike is out of its control to some extent.
Furthermore, the strike may provide benefit to Tropical through lower future wage costs.
However, Bottle does control how it will use its resources once the strike is over. Producing its
own juices only is not in accordance with its responsibility under the agreement, although
producing only Tropical's juices would not be "fair" to Bottle either.
As a compromise, I recommend that Tropical be reimbursed for the gross profit on sales that
could have been made had Bottle resumed production of Bottle and Tropical juices in the same
proportion that existed before the strike. Tropical should not be reimbursed for lost sales that
would have occurred as a result of the strike.
Concerns raised by previous owners of Bottle
Advertising costs
The advertising costs of Citrus for its own products have been partly allocated to Tropical. One
could argue that this is properly chargeable in accordance with section 2(b) of the agreement.
To the extent that Tropical benefited from this advertising, then this is a joint cost, which could
be allocated to Tropical.
However, these costs were not incurred specifically on behalf of Tropical. In fact, the
advertising was intended to be for Citrus products only, since only Citrus brand names were
included and the advertising was directed at the US population. Therefore, Citrus did not incur
any incremental, or additional out-of-pocket, cost on behalf of Tropical.
In keeping with the treatment of computer services that Bottle provided, I recommend that this
cost not be charged to Tropical, as there was no incremental cost to Citrus in providing this
benefit.
Repair costs
Several factors must be clarified in order to determine whether the repair costs charged by
Bottle are appropriate.
These repair costs are a joint cost and are properly chargeable under section 2(b) of the
agreement. This interpretation assumes that the 16% charge on capital investment in assets
employed by Bottle is not intended to cover repair costs. (As previously mentioned, I assume
that this rate is supposed to represent interest.)
However, it could be argued that no charge is appropriate, since Bottle would have had to
repair the machinery anyway for its own production. In essence, Bottle did not incur any
additional cost on behalf of Tropical.
However, it can also be argued that the repairs costs would not have been necessary, or at
least not as frequently, if Tropical juices were not also being produced on the same machinery.
Therefore, I recommend that the repair costs be allocated between Bottle and Tropical, based
on their relative utilization of this repaired equipment.
Inventory costing
While absorption costing is an acceptable method of costing inventory, we must ensure that
Bottle is not double charging for its costs. Absorption costing means that fixed manufacturing
overhead costs are included in the determination of inventory cost.
Items such as depreciation are appropriate if the 16% charge is not intended to cover
depreciation. Interest is not chargeable since I have assumed that the 16% is meant to cover
this cost.
Other fixed costs should be included only to the extent that they represent Bottle's incremental
cost of producing Tropical juices. This recommendation is consistent with those made
previously in this report, such as those for computer services and advertising.
Concerns of DIL
Revenue recognition policy

It may be inappropriate for Tropical to recognize revenue on juices shipped to distributors but
not yet sold by them.
Although this issue is not specifically addressed by the joint-venture agreement, revenue should
be recognized only when it is relatively certain that the sale has taken place. In Tropical's case,
revenue should be recognized when Tropical no longer retains any significant risks associated
with the inventory. When the juices are shipped to the distributor, there is no certainty that the
juices will be sold. More important, it is likely that the juices have a limited shelf life, and it may

be very likely that the distributor will not sell the juices before the shelf life expires.
Therefore, I recommend that revenue be recognized only when the distributor has sold the
juices and the eventual receipt of cash by Tropical seems likely.
If there is a high inventory turnover, then this adjustment will probably be small.
Refrigerated tanker trucks
There are several approaches to dealing with the cost of the refrigerated tanker truck
purchased by Citrus.
At the outset, it needs to be determined whether the fair market price charged by Citrus for its
juice concentrates is supposed to include delivery. If it is, then this charge is not appropriate. I
assume that the price does not include delivery, since DIL appears to be more concerned about
the approach to determining the charge than the charge itself.
It can be argued that the charge by Citrus over three years is appropriate if this is the expected
life of the truck. In this manner, the cost is appropriately matched to the revenues they help to
generate. Under this approach, Citrus would then be reimbursed the equivalent of interest at
16% for each of the three years, in line with the approach adopted for Bottle for its capital
expenditures.
An alternative approach is to allow Citrus to be reimbursed fully in the current year since this
disbursement was made on behalf of Tropical, as specified in section 2(a) of the agreement.
However, it can be argued that an allocation is more appropriate since the new truck could have
been used by Citrus, and Tropical could have used the older trucks. The fact that the tanker
truck was purchased in the second year suggests that the truck was not needed solely for
Tropical.
Consistent with the incremental-cost approach that has been taken in resolving the previous
issues, I recommend that Citrus charge the additional cost of the tanker truck to Tropical over its
useful life. In addition, Citrus should be allowed to charge 16% as the interest component,
consistent with other capital expenditures made by Bottle.
Receivables
Whether or not Citrus can charge interest on its receivable from Tropical depends on the terms
of its usual policy on sales. As it is industry practice, there is probably a period of, say, 30 days
within which the amount is due without any interest charge. Given that Tropical pays fair value
and assuming it pays within the required period, then no interest charge is appropriate.

However, interest can be charged on late payments. I recommend the 16% rate that I have
used in previous recommendations.
Manipulation of profits
Not enough facts are provided to permit an analysis of DIL's claim that the previous owners of
Bottle were manipulating profits between years. However, this concern may not be relevant. The
manipulation only matters if Tropical could have made more than the minimum specified in the
agreement, or if the net amount of the manipulation exceeded the deficiency calculated in
accordance with the agreement. Based on a comparison of the preliminary results of Tropical
for year 1 and the sale agreement, the manipulation appears unlikely to affect the liability owed
by the previous owners of Bottle.
Case 9-4
The IASB’s Framework for the Preparation and Presentation of Financial Statements states
“Information is material if its omission or misstatement could influence the economic decisions
of users taken on the basis of the financial statements. Materiality depends on the size of the
item or error judged in the particular circumstances of its omission or misstatement. Thus,
materiality provides a threshold or cut-off point rather than being a primary qualitative
characteristic which information must have if it is to be useful.”
The materiality of a misstatement may turn on where it appears in the financial statements. For
example, a misstatement may involve a segment of the registrant's operations. In that instance,
in assessing materiality of a misstatement to the financial statements taken as a whole,
registrants and their auditors should consider not only the size of the misstatement but also the
significance of the segment information to the financial statements taken as a whole.
A misstatement of the revenue and operating profit of a relatively small segment that is
represented by management to be important to the future profitability of the entity is more likely
to be material to investors than a misstatement in a segment that management has not
identified as especially important. In assessing the materiality of misstatements in segment
information - as with materiality generally - situations may arise in practice where the auditor will
conclude that a matter relating to segment information is qualitatively material even though, in
his or her judgment, it is quantitatively immaterial to the financial statements taken as a whole.

Thus, in addition to quantitative factors, such as the relative percentage of total revenues
generated in an individual foreign country, companies should consider qualitative factors as
well. Qualitative factors that might be relevant in assessing the materiality of a specific foreign
country include: the growth prospects in that country and the level of risk associated with doing
business in that country.
There are competing arguments for the IASB establishing a significance test for determining
material foreign countries. On one hand, a 10% of total revenue or long-lived asset test is very
objective and easy to apply. However, it might give companies an excuse to avoid reporting
individual countries that would be material for qualitative reasons. Assume that from one year to
the next a company increases its revenues in China from 2% of total revenues to 6% of total
revenues. Although 6% of total revenues would not meet a 10% test, the relatively large
increase in total revenues generated in China could be material in that it could affect an
investor’s assessment of the company’s future prospects. This company might be reluctant to
disclose information about its revenues in China because of potential competitive harm.
On the other hand, the IASB could establish a materiality threshold low enough, for example,
5% of total revenues, that would be likely to ensure that “material” countries are disclosed
regardless of whether they are material for quantitative or qualitative reasons. A bright-line
materiality threshold would ensure a minimum level of disclosure and would enhance the
comparability of financial disclosures provided across companies.
Case 9-5
Report to the Directors of PTV:
Overview
The environment in which PTV operates is a very difficult one for accounting. The software
industry is subject to rapid change; so transaction-based accounting may not capture changes
in asset values on a timely basis. The values of software and research and development can
change dramatically as changes occur in the market place. Historical cost accounting and
GAAP may not be appropriate because the contract requires recognition of changes in the fair
market value (FMV) of all assets and liabilities with the changes reported in profits from
operations. GAAP and historical cost accounting typically recognize changes in value only when
there is an underlying transaction, so only changes in value from transactions with outside
parties would be captured in the accounting records. Given the rapid changes that can take

place in this industry and the valuation use of the statements, GAAP accounting is not
appropriate.
It is important to remember that measurement is the crucial issue for PTV. While disclosure can
provide useful information to users, in this case many of the uses of the statements require
valuation of assets and liabilities so that, for example, share values can be determined. Thus,
methods to measure changes in value must be used to serve the users of the financial
statements.
Users and user needs
There are many users of the financial statements, and many uses. One use of the financial
statements is for profit sharing among the venturers. The contract states that the profits are to
be divided among the owners. While the contract states that income should reflect changes in
asset values, income for purposes of distributing profits to the venturers should reflect cash
flows so that excessive cash is not taken out of PTV. Since PTV has many long-term contracts,
there can be significant delays between recognition in the statements and realization of cash.
For purposes of measuring the performance of PTV and/or its management, it would be useful
to use changes in asset and liability values, including unrealized changes, since the rapid
changes in the industry will not be reflected in the statements on a timely basis if traditional
transactions-based accounting is used. Generally, for performance measurement purposes
"fair" accounting policies would make sense for the evaluation of PTV and its managers. In this
setting, "fair" would reflect the changes in value in PTV over time.
Another use for the financial statements is setting the price of units for new venturers. From the
existing ventures’ perspective, more aggressive accounting policies will increase income and/or
increase the value of balance sheet assets, which in turn should increase the price of the units,
an outcome they would desire. Recognizing unrealized gains on the balance sheet and income
statement would certainly contribute to increasing income and reported asset values. More
aggressive accounting would be reflected by more optimistic estimates.
The bank is another important user of the financial statements. The bank's use is relatively
mechanical since it employs a lending formula that is closely linked to cash flows and the fair
market value (FMV) of assets less liabilities. The bank will use the financial statements to

assess the reasonableness of its loan position with PTV. PTV will probably want to maximize the
credit available to it by maximizing cash flows and net asset values.
From the users' perspective, new venturers will be interested in the financial statements since
the financial statements will be used to set the price of units. As opposed to the existing
venturers who will want to push the price of the units higher, the prospective venturers will want
to ensure that the price they pay is reasonable (reflects the risk-adjusted present value of the
expected cash flows). The prospective venturers will be concerned that the financial statements
might be manipulated to inflate the price of the units. Their concerns will revolve around the
preparer's valuing of non- arm's-length transactions and by aggressive fair-valuing of assets and
liabilities.
All of these objectives conflict to some extent. It certainly will not be possible to satisfy them all
with a single general-purpose report. It may be possible to produce multiple, special-purpose
reports to satisfy the various user demands.
These statements will have to be prepared using a disclosed basis of accounting since GAAP
clearly is not appropriate for most users and uses. GAAP should not be used because the
Agreement Among Venturers specifies fair valuing of assets and liabilities (which means
recognizing unrealized gains and losses), PTV is not incorporated (so there are no legal
constraints), and there is no contractual obligation to use GAAP. Indeed, the contract calls for
recognition of unrealized changes in value, which is generally inconsistent with GAAP.
Although there are many users and uses, I think that preparation of two sets of statements
makes sense. One set would use fair valuing as specified in the contract (useful for valuation of
units, bank purposes, and performance evaluation). The other set would be linked to cash flow
so that distributions could be made without imposing financial hardships on PTV.
Revenue recognition
PTV enters into contracts to produce software. Revenue recognition is an important issue
because the method selected will have a significant effect on the users and uses of the financial
statements. Among the traditional methods of recognizing revenue, the one most consistent with
user needs is the percentage-of-completion method. Percentage of completion captures the
earnings process as the work is done and therefore provides a valuation that is closer to market
values than the alternatives. Percentage of completion does not capture the FMV of the
unfinished portion of the contract, however.
Cash is received from clients after completion of each phase of the project. Since cash
collection is not assured, income and asset valuation might be overstated if revenue is
recognized early. The timing of recognition is especially important for determining distributions to
the venturers since if cash collection and recognition do not correspond very closely in time,
PTV may have to payout cash it does not have. It may also affect valuation for such things as
sale of units, although this problem could be resolved with an allowance for bad debts.
Some of PTV's contracts are cost plus. The definition of cost for these contracts is not specified.
Cost could be full cost, direct costs, incremental costs, or negotiated costs. Depending on the
definition, there could be cost overruns that are not recoverable. If revenues are recognized on
the basis of non-recoverable costs, financial statement misstatements might occur that affect
valuation of units, bank loans, and distributions to venturers.
The current method of recognizing software development revenue carries the accumulated
costs as work in process (WIP) until invoicing. This method does not reflect the fair market value
of the contracts because the fair market value (selling price) is not reflected on the balance
sheet. The method of accounting is important because uses such as the calculation of the
selling price of units and payouts to venturers as well as bank financing are dependent on the
statements. Thus the choices affect both income-statement and balance-sheet uses. Early
billing is desirable for bank purposes because the loan is based on FMV of assets less liabilities.
Earlier recognition of the receivable or the marking up of the WIP to market increases the base
for determining the size of the line of credit.
In sum, the contract calls for market valuation of assets and liabilities. For valuation of units and
bank purposes, the market value of the project should be used. Changes in the market value
from period to period should be recorded in the income statement.
PTV recently signed a contract to develop animation materials. The contract is expected to
generate revenue of $10 to $14 million. Costs are not known. The contract clearly has value to
the entity, and parties buying into PTV should have to pay for the contract since the firm is better
off with it than without it (although there is some probability that the contract will lose money).
One approach would be to recognize a portion of the profit immediately. A second approach
would be to value it at the present value of net cash flows, using a discount rate that takes into
consideration the risk of ultimate profit realization. The problem in both cases is estimating
costs. It is not clear to what extent PTV has experience with this type of contract so as to
provide reasonable estimates of the amount and timing of the cash flows. Valuing the cash flows
is likely the more "correct" approach to use, although recognizing a portion of profit may be
more practical.
Recognizing the contract in the statements would also increase the credit line from the bank.
For the existing venturers, reflecting the contract in the statements would make sense for
performance-evaluation purposes. For determining profit distribution, including the contract in
the statements probably does not make sense because cash will not be collected for two years
and cash will likely be required to do the work for at least part of the contract period. In
summary, for the purposes of these financial statements, in most cases it makes sense to reflect
the contract in them. For determining profits available for distribution, PTV should use the cash
method.
Valuation of contributions
All contributions by venturers should be recorded at FMV to meet the terms of the Agreement
Among Venturers. For FL, the identifiable assets that FL transferred to PTV have an FMV of
$8.1 million, but the assigned value was $8.8 million. Thus goodwill of $700,000 is being
attributed to FL's contribution.
For BCC, the $2-million loan by BCC to PTV is below FMV and is not an arm's-length
transaction, so there is the question of whether the loan should be recorded at FMV. If the loan
is recorded at FMV, PTV's profit will fall because interest is expensed at the market rate. If the
loan is treated in this way, the selling price of units could fall since income is reduced (if the
income statement is used for valuing the venture). The payout to existing venturers would also
be reduced if it were based on this statement. Is the interest rate the cost of money for BCC? If
so, is FMV the cost to BCC or the cost that PTV would pay in an independent transaction? For
the short term, using the actual cost to PTV makes sense since the rate charged to it represents
the real economic cost, which is appropriate for decisions such as valuation of units. This
approach also makes income closer to cash flow, which is useful for determining distributions to
existing venturers. In the longer term, using the actual rate could be misleading if users are
using the existing information to predict future cash and income flows, because in the future
PTV will have to borrow on its own at market rates. For determining payouts to existing
venturers, PTV should use the actual cash flows.
For EPL, the carrying amount of the building is not relevant. Since EPL received a 30% share of
the venture, it makes sense that the building should be recorded on PTV's books at $6.6 million
($22 x 0.3, using BCC's cash contribution as the basis for the calculation).
Related-party transactions
PTV is receiving funds and services that are not being provided at arm's length. These include
the management team, rent on space, and a non-exclusive right to distribute PTV products.
Terms have been agreed to for these arrangements, but it is not clear whether the
arrangements represent FMV for the goods and services provided.
PTV has granted FL a non-exclusive right to sell its products. FL may purchase from PTV at a
discount. Should this right be recorded? If it increases sales and does not reduce sales to other
customers, then it has a positive value. If it does reduce sales, then it has negative value since
sales are made at below the usual price. Depending on the magnitude of sales, this agreement
could have an effect on the bank line of credit, prospective venturers, and evaluation by existing
venturers since it affects users' estimates of future cash flows.
In general, when funds and services are provided at prices below FM V, the actual costs to PTV
are lower than the real economic cost, so reported income is higher. For the valuation of PTV for
purposes of selling venture units, not using FMV could result in purchasers paying too much for
the units because the below-FMV costs are not likely to continue indefinitely. However, in the
short term the actual cost is the real cost to PTV, so using FMV understates income for the
periods where the below-FMV benefits are being realized. Part of the issue is the duration of the
below-market cost benefit. If the duration is short, then FMV is more justifiable. For purposes of
payouts to venturers, actual cost probably makes more sense since income will be more closely
tied to cash flows.
Prospective venturer loan
A prospective venturer has loaned PTV $1 million at market rates for one year. The $1 million
becomes part of the purchase price if the venturer chooses to purchase 10% of PTV (the
purchaser would pay FMV at the time of purchase). If the venturer decides not to purchase an
interest in PTV, the money becomes PTV's. If the prospective venturer purchases an ownership
interest, the $1 million plus the additional amount paid is equity of the venturer. If the
prospective venturer does not purchase an interest, then the money is effectively being given to
the existing venturers and could be considered an income item. In effect, this transaction
represents the purchase and sale of an option to buy 10% of PT V at FMV. The accounting
problem is how to account for the transaction before it is known whether the option will be
exercised.
The amount can be treated either as an income-statement item or as an increase in equity.

Treating it as an income-statement item makes sense if the venturer does not buy an interest
since the amount is an increase in the wealth of the existing venturers. If it is likely that the
prospective venturer will buy an interest in PTV, then treatment as equity makes sense. If
treated as an equity amount, it could be included in the overall venturers' equity, or it could be
segregated as restricted equity until the transaction is completed. Thus the probability of the
interest being purchased has an impact on whether the $1 million is accounted for as income or
equity.
I suggest that the $1 million be treated as an equity contribution since, for the intended uses of
the financial statements (particularly the valuation of units), the amount is non-recurring and
including it as income may result in too high a price for the units if the income statement is used
for the valuation. However, new venturers should be expected to pay for their interest in this
cash inflow. The amount must be considered a "one-shot deal." Segregating the amount in
equity will make it clear that the amount is not available to the existing venturers until it is known
whether the option is exercised.
Other issues
A number of miscellaneous issues should be addressed.
Inventory and short-term investments should always be recorded at market value, even if the
changes in value are not realized.
PTV has invested $320,000 in joint ventures with other organizations for developing specialized
computer graphics packages. These investments should be recorded at FMV for most uses.

However, there is usually a great deal of uncertainty about FMV for software under
development. It is difficult to determine whether the software will be marketable and how much
can be sold and at what price. Thus determining FMV for this type of asset is very difficult and
subject to significant error. This uncertainty could affect the selling price of units to prospective
venturers. Evaluation by venturers may be affected as well, but as insiders they are likely to be
aware of the uncertainty.
The value of leased equipment has declined significantly since the leases were signed. This
decline causes a change in the value of the lease. The decline results in a loss since the lease
becomes overvalued with the fall in value.
Normally, assets are depreciated. However, in this case depreciation does not make sense
because it is simply an allocation of cost, and PTV is interested in recording actual changes in
market value.
PTV's building is undergoing renovations and these will affect its market value. Changes in FMV
(caused by the renovations and other factors) should be recorded on an ongoing basis for
purposes of determining the selling price of PTV units and for determining the size of the line of
credit.
A difficult problem that PTV faces is actual valuation of its assets. In the fast-paced high
technology business, it may be difficult to keep on top of the changes in value of the assets. It
may be necessary to hire a specialist in the industry to help with the valuation. Adding to the
problems of valuing PTV's assets is the fact that many of them are soft-their values are highly
subjective. For example, determining the values of goodwill and intangible assets is very
subjective.
Case 9-6
Memo to: Wendy Yan, engagement partner, P&P
From: CPA
Subject: Issues associated with Genuine Investments Inc.
As requested, I have analyzed the accounting issues associated with Genuine Investments Inc.
for both ODI and GI.

Oxford Developments Inc.
It appears ODI’s investment in GI is a joint arrangement. The key factor is that ODI and HMI
jointly control GI. The agreement between ODI and HMI provides that each has 1,000 voting
shares in GI. The companies each appoint two members to GI’s board of directors and jointly
appoint the chair. They have equal say in key management decisions through their appointment
of the board and with having the same number of voting shares.
GI is a joint venture (as opposed to a joint operation) because the venturers only have an
interest in the net assets of GI as per the clause in the agreement which states: “If the company
is wound up or dissolved for any reason, the final distribution of any amounts remaining shall be
made in proportion to the Class B shareholdings of each investor.” The venturers do not have
any specific rights to the assets of GI and do not have any individual responsibilities for the
liabilities of GI.
According to IFRS 11, an investment in a joint venture is to be reported using the equity method.
ODI will accrue its share of income earned by GI as it is earned by GI. For any intercompany
transactions between ODI and GI, gains and losses can be recognized only to the extent of
ODI’s percentage interest of 50%. This would apply in two areas: 1) ODI’s initial contribution to
GI (land and building); and 2) any operating transactions occurring on an ongoing basis.
For ODI’s initial contribution, it contributed $1,000 in cash plus land and a building to GI and in
return received a 50% interest in the joint venture. Details of the assets transferred are as
follows (in thousands):
Cost to ODI Current Gain 50% of

Market Value Gain
Land $ 480 $ 1,890 $ 1,410 $ 705
Building 4,000 4,560 560 280
Total $ 4,480 $ 6,450 $ 1,970 $ 985
IFRS 10 paragraph B34 describes how to account for contributions of assets to a joint venture
as follows:
When an entity enters into a transaction with a joint operation in which it is a joint operator, such
as a sale or contribution of assets, it is conducting the transaction with the other parties to the
joint operation and, as such, the joint operator shall recognize gains and losses resulting from
such a transaction only to the extent of the other parties’ interests in the joint operation.
ODI contributed cash, land, and a building to GI and received in exchange an interest in the joint
venture, GI. The other venturer, HMI, contributed cash equal to the market value of ODI’s
contribution. This means that ODI and HMI each have a 50% interest in GI. Therefore, only 50%
of the overall gain can be recognized by ODI in its financial statements. The remaining 50% will
be deferred and reported as a contra account to the investment in GI and not on the liability side
of the balance sheet. It will be brought into income in a rational and systematic manner over the
life of the contributed assets. If the contributed assets are disposed of by the joint venture, any
unamortized portion of the deferred gain should be taken to income.
The building is renovated, and a portion of the building (the hotel rooms and common areas) is
sold to individual investors by GI. A portion of the building (retail and restaurant areas) is
retained by GI and is a depreciable asset. The portion of the gain relating to the hotel is deferred
and recognized as the rooms are sold. The portion of the gain relating to the retail and
restaurant areas is deferred and recognized as the asset is depreciated over its useful life.
50% of Area Amount Amortization

Gain (sq. ft.) over 40 years
Building $ 280,000 50,000
Hotel portion 35,000 $ 196,000
Retail and restaurant portion 15,000 $ 84,000 $ 2,100 per year
Because land is not a depreciable asset, the deferred gain should be taken into income on a
basis appropriate to the expected revenue or service to be obtained from its use by the joint
venture. Since it is not part of the sale of the rooms (see GI discussion in the next section), it
can be argued that the land will provide revenue or service to the joint venture on the same
basis as the retail and restaurant portions of the building. Therefore, the deferred gain of
$705,000 related to land will also be amortized over 40 years, which amounts to $17,625 per
year.
The initial sales of hotel rooms are performed through ODI, and for its services, ODI receives a
sales commission from GI of 2.5%. GI will report a commission expense for the same amount,
which will reduce GI net income for the period. When ODI accrues its share of GI’s net income,
it will offset its commission revenue by 50% of the commission expense. In the end, only 50% of
the commission revenue ends up in ODI net income for the period.
Genuine Investments Inc.
Genuine Investments Inc. is a new corporation. Selecting appropriate accounting policies from
the start is very important. The company is a joint venture owned by ODI and HMI, so it will be
included in ODI’s (and presumably HMI’s) financial statements using the equity method.
Therefore, policies selected for GI should align with ODI’s and HMI’s where possible. The
following are key areas of discussion regarding accounting policies and other accounting issues.
1. Revenue — multiple deliverables
Revenue generated from the sale of individual rooms to investors has two distinct components:
the sale of the individual room and the provision of hotel rooms upon redemption of the Gold
Redemption vouchers. The total payment received from the transaction is $160,000. According
to IFRS 15, if there is objective and reliable evidence of fair value for all units of accounting in
an arrangement, the arrangement consideration should be allocated to the separate units of
accounting based on their relative fair values. In this case, we need to determine if the Gold
Redemption vouchers can be separated from the sale of the hotel room for revenue recognition
purposes. This is important because the hotel room is provided at the outset of the
arrangement, but the Gold Redemption vouchers are redeemed in the future. Normally, an item
is considered a separate unit of accounting if 1) the item has value to the customer on a
standalone basis; 2) there is objective and reliable evidence of the fair value of the item; and 3)
the item includes arrangements with respect to general rights of return (if applicable).
The hotel room can be separately used and sold by the purchaser, and therefore has
standalone value apart from the obligation to provide hotel rooms upon redemption of the Gold
Redemption vouchers. Fair value may be determined for the undelivered Gold Redemption
vouchers based on the daily room rates being charged separately to hotel guests (an average of
$175). There is also no general right of return. The Gold Redemption vouchers appear to meet
these criteria and therefore should be accounted for as a separate unit of accounting from the
sale of the hotel rooms.

The value of the Gold Redemption vouchers can be calculated as follows: 60 vouchers at $175
per voucher (fair market value), which totals $10,500. Therefore, if the total revenue generated
from the sale is $160,000, $10,500 should be allocated to the Gold Redemption vouchers and
the residual $149,500 should be allocated to the sale of the hotel room.
The value allocated to the Gold Redemption vouchers should be accounted for as deferred
revenue. The value will be brought into income as the vouchers are used.
2. Revenue — ongoing revenue stream
There may be an issue associated with the ongoing management fee that GI receives from
each owner to manage the property. Owners receive only 40% of room revenues associated
with the rental of their room to hotel guests. The other 60% of the rental revenue goes to GI to
manage the hotel. We could argue that the management fee revenue that GI receives is not
separable from the initial sale price of the unit ($160,000). If the amounts are not separable,
then the initial unit revenue would need to be deferred and amortized along with the 60%
management fee over the entire term of the expected benefit (40 years, based on the estimated
useful life of the building).
However, and more likely, the 60% management fee relates to the ongoing management of the
hotel and is therefore separable from the original unit sale. As well, unit owners are not required
to have GI manage the hotel room on their behalf, since this represents a separate and optional
contract for the unit owners. Therefore, the revenue from the sale of each unit (along with the
associated costs) should be recognized when title of the property transfers to the unit owner.
The management fee (60%) would then be recognized as guests rent the hotel rooms through
GI.
We could also argue that the sale of the units and the agreements for management of the hotel
rooms by GI, in substance, constitute a sale-leaseback transaction. If this is the case, the gain
or loss on the initial sale of the units would be deferred and amortized over the term of the
lease, which could be determined to be the 40-year useful life of the building. However, since
the initial sale of the units can clearly be distinguished from the management contract (as noted
above) the transactions do not represent a sale-leaseback transaction.
3. Non-refundable deposits
The deposits received on sales are non-refundable. The deposit should be classified as
deferred revenue until either the room is sold and title transfers (in other words, “closes”), or it is
forfeited, at which point it will be recognized as revenue. Deposits have been received for 40
rooms, and currently these amounts have been placed into other income. Since the rooms have
not been sold and title has not transferred, a journal entry is required to reclassify these
amounts from other income to deferred revenue. This amounts to $320,000 (40 rooms × 5% ×
$160,000). However, investors representing seven of the rooms have recently backed out.
Given the non-refundable characteristic of these deposits, an amount of $56,000 should be
recorded as income if GI has no intention of returning that amount to the investors. Therefore,
the net amount that should be moved from income to deferred revenue is $264,000,
representing deposits on 33 rooms.
4. Accounting for the reserve fund
On an annual basis, room owners pay $2,000 into a reserve fund. The funds are to be used for
repairs and upkeep of the hotel, including furniture and equipment. The fund is not to be used
for ongoing maintenance, which will be performed by HMI. The monies are collected by GI, but
use of the reserve fund is restricted. Therefore, as the monies are collected they should be put
into a restricted cash account until they are used for the associated expenditures, with an
offsetting liability recorded. As the money is used to fund the restricted expenditures, the
restricted cash account and the related liability account would be reduced accordingly. No
amounts related to these payments would ever appear on the income statement. We need to
find out what happens to the interest earned on the funds invested; assuming it is maintained in
the fund, it should also be accounted for as above.
5. Accounting for the land and building — initial cost
The land and building to be used for the hotel development were contributed to GI by ODI. The
discussion at the beginning of this report covers the accounting for this transaction by ODI.
There is no requirement that the value recorded in GI’s books be the same as that required by
ODI. GI’s trial balance currently reflects the land at its market value. There are other alternatives
as follows:

(1) Valuation of the net assets at their fair value (fair value may differ from the values agreed
upon in the joint venture agreement)
(2) Valuation of the net assets at the carrying amount of the net assets to the joint venturers
prior to the contribution
(3) Valuation of the net assets at the carrying amount of the venturer’s investment in the joint
venture.
This would include any gain recorded by a venturer on the portion of the assets considered to
be sold.
Once the selection is made, the entity should disclose the basis of valuation adopted to account
for assets contributed by the joint venturers.
Accounting for the assets at the cost to ODI (alternative number 2 above), the lowest value, will
result in a reduced loss to GI (see discussion and presentation of financial results that follows).
However, ODI will likely want its contribution to GI recorded at market value (alternative number
1 above) because the forecasted statements would be used by the bank to support the
financing. Therefore, I recommend recording the land and building at the highest value, which is
current market value.
6. Accounting for building costs including renovations
Building costs will include the value originally recorded on transfer of the assets (discussed in
the previous point) and the costs of the construction in progress, including the associated
construction costs (architect and project management fees, landscaping fees, financing
arrangement fees, property taxes, building permit costs, insurance expense, and interest
expense related to construction).
Once the cost of the building is determined, it must be allocated to the components of the
building: 1) hotel rooms (including the common areas), and 2) retail and restaurant areas. For
building costs that are not directly attributable to one of these components, a reasonable
allocation approach must be selected, such as the relative square footage. The hotel rooms will
be inventory and ultimately cost of goods sold, whereas the retail and restaurant areas will be a
capital asset.

Land has an indefinite life so it is not considered part of the sale of each room. The building
costs and the construction costs will be allocated based on the square footage. The furnishings
and equipment are all related to the hotel and will be allocated only to the hotel rooms.
Costs to be allocated (in thousands):

Building (highest value chosen — see previous point) $ 4,560
Construction in progress (trial balance) 10,034
Architect and project management (trial balance) 137
Landscaping fees (trial balance) 87
Financing arrangement fees (trial balance) 63
Property tax (trial balance) 41
Building permit costs (trial balance) 50
Insurance (trial balance) 27
Interest (trial balance) 175
Total building costs A $ 15,174
Furnishings and equipment — rooms $ 5,082

Furnishings and equipment — common areas 2,100
Total furnishings and equipment costs B $ 7,182
Square footage:
Rooms (100 rooms × 300 square feet per room) 30,000
Common areas 5,000
Subtotal C 35,000
Retail and restaurant D 15,000
Total area E 50,000
Allocation of costs for all rooms A÷E×C+B $ 17,804

Allocation per room $ 178.04
Allocation of costs for retail and restaurant A÷E×D $ 4,552
Hotel rooms are sold to investors with an anticipated sale price of $160,000 each (or $149,500
after consideration is allocated to the Gold Redemption vouchers). According to the calculation
above, the cost of each room is almost $180,000. It appears that the rooms are being sold at a
loss. Prior to the sale of the rooms, GI is entitled to 100% of the room rental revenue. GI will
also receive 60% of the room rental revenue on an ongoing basis once the rooms are sold.
Therefore, there does not appear to be a requirement to write down the cost of the rooms as
presumably valuing the asset on the basis of projected future cash flows would result in a value
greater than $180,000. In practical terms, all of the rooms are expected to be sold within a short
period of time prior to year-end, so this has not been researched further.
We could argue that the loss on the sale of each unit could be capitalized as an intangible asset
because GI will earn income from the future management of each unit to recover these costs.
However, the management contract between GI and the hotel room owners is at each owner’s
option, and the sales price is not affected by whether the owner enters into the separate
management agreement. Therefore, the capitalization of this loss before the sale of the unit is
not appropriate. Losses must be recognized as the units are sold or earlier if the amounts are
determined not to be recoverable (such as at the next year end if the units remain unsold).
7. Accounting for related party transactions
ODI and HMI are related parties with respect to GI because they both exercise joint control over
GI. The Genuine Investments Inc. agreement provides for ongoing transactions between GI and
ODI and between GI and HMI.
ODI will be the agent for the sale of hotel rooms to investors — both on the initial sale and on
resales. The transactions relating to the original sale will involve GI. Subsequent resale
transactions will not involve GI.
HMI will provide ongoing management of the hotel under a contract with GI at rates originally
provided in the agreement, to be renegotiated after five years.
Certain disclosures will be required in GI’s financial statements (and in ODI’s and HMI’s financial
statements) with respect to these related party transactions. These will include: a description of
the relationship between the transacting parties; a description of the transactions; the
recognized amount of the transactions classified by financial statement category; the
measurement basis used; amounts due to or from related parties, and the terms and conditions
relating to them; and contractual obligations with related parties, separate from other contractual
obligations.
The initial transfers of assets to GI are not related party transactions because ODI and HMI
were not related before this joint investment.
SOLUTIONS TO PROBLEMS
Problem 9-1 (in 000,000s)
(a) (b) (c)
Implied Value of consideration given
Fair value of amount invested by Benefit 0 0 0
Fair value of NCI (= value of common shares) 45 40 55
Total implied value of consideration given 45 40 55
Value of identifiable assets received
Carrying amount of amount invested by Benefit 0 0 0
Fair value of Pharma’s own assets 460 460 460
Less: Fair value of liabilities of Pharma (415) (415) (415)
Total value of identifiable net assets received 45 45 45
Acquisition differential 0 (5) 10
Assigned on consolidation to:
Goodwill 10
Gain on purchase (5) .
Balance to assign 0 0 0
The consolidated balance sheets would appear as follows:

Current assets $550 $550 $550
Property, plant & equipment 790 790 790
Intangible assets 220 220 220
Goodwill 10
$1,560 $1,560 $1,570
Current liabilities $405 $405 $405

Long-term debt 780 780 780
Common shares 60 60 60
Retained earnings 270 275 270

Non-controlling interest 45 40 55
$1,560 $1,560 $1,570
Problem 9-2
(a)
Cost of 80% investment, December 31, Year 4 8,000
Implied value of 100% investment 10,000
Total shareholders' equity of Dandy 7,000
Acquisition differential 3,000
Allocation:
Equipment (950 – 700) 250
Deferred tax asset on loss carry-forward (800 x 40%) 320
Deferred tax liability on equipment (950 – 700) x 40% (100) 470
Balance – goodwill 2,530
(b) Non-controlling interest on consolidated balance sheet at January 1, Year 5:

20% x 10,000 = 2,000
(c) Amortization
Balance Year 5 Year 6 Year 7 Balance
Jan. 1/5 Dec. 31/7
Equipment 250 25 25 25 175
FTA on loss carry-forward 320 401 802 200
FTL on equipment (100) (10) (10) (10) (70)
Goodwill 2,530 0 300 0 2,230
Total 3,000 15 355 95 2,535
Notes:
1. 100 x 40%
2. 200 x 40%
(d) Since tax returns are filed for separate legal entities and not the consolidated entity, the fair
value excess in a business combination is not considered to be a deductible cost for tax
purposes. If the asset acquired in a business combination were subsequently sold at its
fair value, a gain would be reported for tax purposes and tax would be payable even though

no gain would be realized from an accounting perspective. The tax obligation is reported
as a deferred tax liability on the consolidated financial statements at the date of acquisition.
Problem 9-3
(a)
Deferred tax assets and liabilities pertaining to Mansford
Fair value Tax basis Difference
Inventory 135,800) 128,000) 7,800)
Land 228,000) 93,000) 135,000)
Buildings 42,000) 16,800) 25,200)
Equipment 26,800) 15,600) 11,200)
Noncurrent liabilities (155,000) (153,600) (1,400)
277,600) 99,800) 177,800)
Subsidiary's tax rate 35 %)
Deferred tax liability – in total on consolidation 62,230
- already reported by Mansford 12,040
- adjustment required on consolidation 50,190
Cost of 100% of Mansford Corp. 353,000

Carrying amount of Mansford Corp.’s net assets
Assets 406,250)
Liabilities 209,455)
196,795)
Green Inc.'s percentage ownership 100%) 196,795
Allocated: FV – CA
Inventory 7,800)
Land 135,000)
Buildings 3,000)
Equipment (1,000)
144,800)
Deferred tax liability 50,190)
Noncurrent liabilities 1,400) 93,210
Goodwill 62,995

Green Inc.
Consolidated Balance Sheet
at January 1, Year 5
Cash (355,300 – 353,000 + 54,300) 56,600

Accounts receivable (168,100 + 64,150) 232,250
Inventory (275,920 + 128,000 + 7,800) 411,720
Land (327,700 + 93,000 + 135,000) 555,700
Buildings (252,700 + 39,000 + 3,000) 294,700
Equipment (79,900 + 27,800 – 1,000) 106,700
Goodwill 62,995
1,720,665
Current liabilities (137,500 + 43,815) 181,315

Deferred tax liabilities (106,575 + 12,040 + 50,190) 168,805
Non-current liabilities (0 + 153,600 + 1,400) 155,000
Common shares 387,200
Retained earnings 828,345
1,720,665
Acquisition Differential Amortization and Impairment

Balance Amortization and Impairment Balance
Jan 1, Yr 5 Yrs 5 to 7 Yr 8 Dec 31, Yr 8
Inventory 7,800 7,800
Land 135,000 135,000
Buildings 3,000 600 200 2,200
Equipment (1,000) (750) (250)
Non-current liabilities (1,400) (420) (140) (840)
143,400 7,230 (190) 136,360
Deferred tax liability (35%) (50,190) (2,531) 67 (47,726)
Goodwill 62,995 62,995
156,205 4,699 (123) 151,629
(b) See below for summary of journal entries.
CONSOLIDATED FINANCIAL STATEMENT WORKING PAPER

GREEN INC.

CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 1, YEAR 5
Eliminations
Green Mansford Dr. Cr. Consolidated
Statement of Financial Position
Cash $ 355,300 $ 54,300 1 353,000 56,600
Accounts receivable 168,100 64,150 232,250
3
275,920 128,000
Inventory 7,800 411,720
Investment in 1 2
Mansford 353,000 353,000
Acquisition 2 3
differential 156,205 156,205
3
327,700 93,000
Land 135,000 555,700
3
252,700 39,000
Buildings (net) 3,000 294,700
3
79,900 27,800
Equipment (net) 1,000 106,700
3
Goodwill 0 0 62,995 62,995
$ $
$1,459,620 406,250 1,720,665
Current liabilities $ 137,500 $ 43,815 $ 181,315
3
106,575 12,040
Deferred tax liability 50,190 168,805
Non-current 3
0 153,600
liabilities 0 1,400 155,000
2
387,200 105,400
Common shares 105,400 387,200
2
828,345 91,395
Retained earnings 91,395 828,345
$ $
$1,459,620 406,250 1,720,665
.
$ $
914,795 914,795
JOURNAL ENTRIES
1 Investment in Mansford $ 353,000
Cash $ 353,000
To record investment in Mansford
2 Common shares 105,400
Investment in K Company 353,000
To eliminate investment account and establish acquisition
differential
3 Inventory 7,800
Land 135,000
Buildings 3,000
Equipment 1,000
Deferred tax liability 50,190
Noncurrent liabilities 1,400
Goodwill 62,995
To allocate the acquisition differential
Total $ 914,795 $ 914,795
Problem 9-4
(a)
The deferred tax liability and the allocation of the Acquisition differential for Problem 4 are the
same as for Problem 3. The implied value of a 100% investment in Mansford is $353,000
($211,800 / 60%), which is the same amount, paid in Problem 3 for a 100% purchase of
Mansford. The only items that are different on the consolidated balance sheet are cash and
non-controlling interest as indicated below:
Green Inc.
at January 1, Year 5
Cash (355,300 – 211,800 + 54,300) 197,800

Inventory (275,920 + 128,000 + 7,800) 411,720
Land (327,700 + 93,000 + 135,000) 555,700
Buildings (252,700 + 39,000 + 3,000) 294,700
Equipment (79,900 + 27,800 – 1,000) 106,700
Goodwill 62,995
1,861,865

Deferred tax liabilities (106,575 + 12,040 + 50,190) 168,805
Non-current liabilities (0 + 153,600 + 1,400) 155,000
Non-controlling interest 141,200
1,861,865
(b) Goodwill NCI

Entity theory (as per part a) 62,995 141,200

Less: NCI’s share of goodwill (40% x 62,995) 25,198 25,198
Parent company extension theory 37,797 116,002
(c) Since tax returns are filed for separate legal entities and not the consolidated entity, the
fair value excess in a business combination is not recognized for tax purposes. If the net
assets acquired in a business combination were sold at their fair value, a gain would be
reported for tax purposes because the fair value is greater than the cost base for tax
purposes. This tax obligation is reported as a deferred tax liability on the consolidated
financial statements at the date of acquisition.
Problem 9-5
(a) Consolidated retained earnings at December 31, Year 16
Hui’s retained earnings $660,000
Gain on purchase 2,000
Cumulative amortization of fair value excess (Note 1) 5,000
Kozikowski’s cumulative income since date of acquisition 200,000
Allocated to non-controlling interest (208,000 x 8% x 5) (83,200)
Balance attributed to Hui 116,800
Consolidated retained earnings at December 31, Year 16 $783,800
Note 1:
Implied Value (i.e. acquisition cost) of consideration given
Fair value of amount invested by Hui 0
Fair value of NCI (= value of ordinary shares) 208,000
Total implied value 208,000
Value of Kozikowski’s identifiable net assets
Carrying amount of amount invested by Hui 0
Fair value of Kozikowski’s own assets 550,000
Less: Fair value of liabilities of Kozikowski (340,000)
Total value 210,000
Acquisition differential (2,000)
Assigned on consolidation to:
Gain on purchase (2,000)
Balance to assign 0

The above calculation assumes that all assets and liabilities would be originally measured at fair
value. This caused a negative acquisition differential of $2,000, which was assigned to gain on
purchase. Therefore, the total fair value excess at the date of acquisition is as follows:
Land 120,000
Manufacturing plant (20,000)
Long-term debt 10,000
The amortization of the fair value excess from January 1, Year 12 to December 31, Year 16
would be as follows:
Jan 1/Yr 12 Cumulative Unamortized

Balance Amortization Balance
Land 120,000 120,000
Manufacturing plant (20,000) (10,000) (10,000)
Long-term debt 10,000 5,000 5,000
110,000 (5,000) 115,000
(b)
Hui Inc.
Consolidated Statement of Financial Position
December 31, Year 16
Land (400,000 + 80,000 + 120,000) $ 600,000

Manufacturing facility (1,050,000 + 520,000 – 20,000) 1,550,000
Accumulated depreciation (400,000 + 260,000 – 10,000) (650,000)
Cash (20,000 + 180,000) 200,000
$2,045,000
Ordinary shares $ 50,000

Non-controlling interest (208,000 + 83,200 – 50,000) 241,200

Long-term debt (450,000 + 290,000 – 5,000) 735,000
$2,045,000
(c) Liabilities are obligations of an entity arising from past transactions or events, the
settlement of which may result in the transfer or use of assets, provision of services, or
other yielding of economic benefits in the future. When the sponsor controls the special-
purpose entity, it indirectly takes responsibility for and assumes the risk related to the
obligations of the special-purpose entity.
Problem 9-6
Intercompany sales $102,000
HD’s portion (one-third) 34,000 (a)
Unrealized profit Before Tax After

tax 40% tax
Property under renovation (30,000 x 20%) $6,000
HD’s portion (One-third) $2,000 $800 $1,200 (b)
HD LTD.
STATEMENT OF FINANCIAL POSITION
at December 31, Year 6
Assets
Joint properties under renovation (0 + 1/3 x 360,000 – (b) 2,000) $ 118,000
Inventory (460,000 + 0) 460,000
Cash for joint properties (0 + 1/3 x 36,000) 12,000
Other assets (1,200,000 + 0 + (b) 800) 1,200,800
$1,790,800
Shareholders’ Equity and Liabilities
Ordinary shares (500,000 + 0) $ 500,000

Retained earnings (220,000 + 0 – (b) 1,200) 218,800
Mortgage payable (0 + 1/3 x 270,000) 90,000
Loan payable to Mr. Saeid (0 + 1/3 x 126,000) 42,000
Other liabilities (940,000 + 0) 940,000

$1,790,800
HD LTD.
INCOME STATEMENTS
for the Year Ended December 31, Year 6
Sales – joint operations (0 + 1/3 x 621,000) $ 207,000
Sales – other (1,700,000 + 0 – (a) 34,000) 1,666,000
Income from joint operations (40,000 + 0 – 40,000) -
1,873,000
Cost of goods sold – joint operations
(0 + 1/3 x 474,000 – (a) 34,000 + (b) 2,000) 126,000
Cost of goods sold – other (1,176,000 + 0) 1,176,000
Selling expenses – joint operations (0 + 1/3 x 27,000) 9,000
Payment to other venturers (0 + 0) -
Other expenses (360,000 + 0) 360,000
Income tax expense (80,000 + 0 – (b) 800) 79,200
1,750,200
Profit $ 122,800
Problem 9-7
Revenue test
Percentage
Revenues of total
A 12,000 31%
B 9,600 24%
C 7,200 18%
D 3,600 9%
E 5,100 13%
F 1,800 5%
39,300 100%
From the revenue test, segments A, B, C, and E are reportable.
Profit Loss
A 3,100
B 2,680
C 1,440
D 660
E 810
F 270
7,250 1,710
10% of above 725 171 725 is higher of two and is the benchmark for reportable.
From the operating profit test, segments A, B, C, and E are reportable.
Asset test
Percentage of
Assets total
A 24,000 30%
B 21,000 26%
C 15,000 19%
D 9,000 11%
E 8,400 10%
F 3,600 4%
81,000 100%
From the asset test, only segment F is not reportable. Since each other segment must be
reported separately, segment F will be reported separately by default.
Problem 9-8
The following answers were determined using the 2014 consolidated financial statements of
Rogers Communications Inc.
(a) As per note 4 to the consolidated financial statements, segment information is provided
on the basis of product lines.
(b) Rogers Communications Inc. does not provide disclosures about major customers in its
consolidated financial statements.
(c) As per note 4 to the consolidated financial statements, the wireless product line is the
largest operating segment in terms of revenue.
(d) Based on disclosures in note 4 to the consolidated financial statements, the media
segment reported the highest growth in revenues from the previous year (7.2%).
Based on this rate of growth, it would take approximately 8 years for sales of the
segment to double.
(e) As per note 4 to the consolidated financial statements, the wireless product line is the
largest operating segment in terms of profit.
(f) Based on disclosures in note 4 to the consolidated financial statements, the business
solutions product line was the operating segment that reported the highest percentage
growth in profit margin from the previous year (15.1%).
(g) As per note 4 to the consolidated financial statements, the wireless product line is the
largest operating segment in terms of assets.
(h) Based on disclosures in note 4 to the consolidated financial statements, the media
segment reported the biggest change in return on assets from the previous year,
decreasing by 26.4% (2014 ROA: 5.3%, 2013 ROA: 7.2%).
Problem 9-9
Cost of 40% of Forma – January 1, Year 5 116,000
Shareholders' equity – Forma 180,000
40% 72,000
Acquisition differential – Jan. 1, Year 5 44,000
Allocated:
Inventory 20,000 × 40% 8,000
Order backlog 40,000 × 40% 16,000
Plant and equipment 50,000 × 40% 20,000 44,000
Balance –0–
Amortization Schedule
Balance Amort. Balance
Jan. 1, Yr 5 to Sept. 30, Yr 7 Sept. 30, Yr 7
Inventory 8,000 8,000 –
Order backlog 16,000 16,000 –
Plant and equipment 20,000 2,750 17,250
44,000 26,750 17,250
Cost of 60% of Forma – Sept. 30, Year 7 300,000

Implied value of 100% of Forma – Sept. 30, Year 7 500,000
Shareholders' equity – Forma 210,000
Allocated:
Inventory 10,000

Land 60,000
Plant and equipment 70,000 140,000
Balance – goodwill 150,000
Amortization Schedule
Balance Amort. Balance
Sept. 30, Year 7 to Dec. 31, Year 9 Dec. 31, Year 9
Inventory 10,000 10,000)) –
Land 60,000 60,000
Plant and equipment 70,000 7,875*) 62,125
Goodwill 150,000 2,025 147,975
290,000 19,900*) 270,100
* 70,000 / 20 × 2¼ = 7,875
Intercompany receivable and payable

Pro receivable from Forma 13,000
Pro receivable from Apex 40,000
30% 12,000
25,000
Unrealized profits Before Tax After

tax 40% tax
Closing inventory - Pro selling 12,000
Less: 70% realized 8,400 3,600 1,440 2,160
Closing inventory – Forma selling 45,000 18,000 27,000
Calculation of non-controlling interest – Dec. 31, Year 9

Preferred shares of Forma 200,000
Dividends in arrears (2,000 x 12) 24,000
224,000
Calculation of consolidated retained earnings – Dec. 31, Year 9

Pro – Retained earnings Dec. 31, Year 9 210,000)
Less: Unrealized closing inventory profit (2,160)
Add: adjust 40% investment in Forma to fair value on Sept. 30, Year 7
(40% x 500,000 – 116,000*) 84,000)
291,840)
Forma retained earnings – Dec. 31, Year 9 95,000
Less: preferred dividends in arrears 24,000
Available to Pro 71,000
Forma retained earnings Sept. 30, Year 7 110,000
Change from Year 7 to Year 9 (39,000)
Less: Acquisition differential amortization (19,900)
Adjusted change (85,900)
100% (85,900)
Apex accumulated earnings 40,000

30% 12,000)
217,940)
* = balance in investment account under the cost method for original 40% interest in Forma
Calculation of investment in Apex under equity method – Dec. 31, Year 9

Cost of investment 150,000
Apex accumulated earnings 40,000
30% 12,000)
Balance under equity method 159,840
(a) (i) Pro Ltd.

Cash (70,000 + 1,500) $ 71,500)

Accounts receivable (210,000 + 90,000 – 13,000) 287,000)
Inventory (100,000 + 62,500 – 45,000) 117,500)
Land (100,000 + 110,000 + 60,000) 270,000)
Plant and equipment (636,000 + 550,000 + 70,000) 1,256,000)
Accum. depreciation (185,000 + 329,000 + 7,875) (521,875)
Investment in Apex 159,840
Goodwill 147,975)
Deferred charge - income taxes (18,000) 18,000)
$1,805,940)
Accounts payable (175,000 + 90,000 – 13,000) $ 252,000)

Bonds payable 312,000)
Common shares 800,000)
Retained earnings 217,940)
Non-controlling interest 224,000)
$1,805,940)
(a) (ii) Pro Ltd.

Cash (70,000 + 1,500 + [.3 × 200,000]) $ 131,500)

Accounts receivable (210,000 + 90,000 + [.3 × 110,000] – 25,000) 308,000)
Inventory (100,000 + 62,500 + [.3 × 70,000] – 45,000 – 3,600) 134,900)
Land (100,000 + 110,000 + [.3 × 60,000] + 60,000) 288,000)
Plant and equipment (636,000 + 550,000 + [.3 × 290,000] + 70,000) 1,343,000)
Accum. depreciation (185,000 + 329,000 + [.3 × 60,000] + 7,875) (539,875)
Goodwill 147,975)
Deferred charge - income taxes (1,440 + 18,000) 19,440)
$1,832,940)
Accounts payable (175,000 + 90,000 + [.3 × 130,000] – 25,000) $ 279,000)

Bonds payable 312,000)
Common shares 800,000)
Retained earnings 217,940)
Non-controlling interest 224,000)
$1,832,940)
(b)
Equity Method Proportionately Adjusted
Current assets 476,000 574,400
Current liabilities 252,000 279,000
Current ratio 1.89 2.06
The proportionately adjusted consolidated financial statement has the higher current ratio and
therefore shows the better liquidity position. Apex’s current ratio is better than the current ratio
for Pro and Forma as a combined entity as per part a). Accordingly, when a portion of Apex’s
assets and liabilities are included in the consolidated financial statements in part a) ii), the
current ratio increases.
Problem 9-10
(a)
Kent Corp.
Income Statement
Sales $3,180,000
Other income (218,000 – [40% x 107,000]) 175,200
Investment income (Note 1) 130,596
3,485,796
Cost of sales $1,445,000
Operating expenses 518,000
Depreciation expense 109,000
Income tax 418,000
2,490,000
Net income $995,796
Note 1:
Investment income
Laurier’s income $356,000
Kent’s percentage 40%
142,400
Less: Acquisition differential amortization 18,500
123,900
Realized gain on sale of land
Kent selling (93,000 x 40% x 30% x [1 – 40%]) 6,696
$130,596
(b)
Intercompany eliminations
Rent (215,000 x 40%) $86,000

Intercompany profits Before Tax After
tax 40% tax
Land – Kent selling in Year 6 $93,000
Considered realized 60%
55,800
Considered unrealized in Year 6 40%
37,200
Realized in Year 9 (30%) $11,160 $4,464 $6,696
Unrealized at end of Year
9 (70%) $26,040 $10,416 $15,624
Calculation of consolidated net income Year 9
Net income, Kent $908,000

Less: dividends 40% x $107,000 $42,800
acquisition differential amortization 18,500 61,300
846,700
Add: realized land gain 6,696
853,396
Net income, Laurier 356,000
40% 142,400
$995,796
Kent Corp.
Consolidated Income Statement
Sales (3,180,000 + [40% x 1,380,000]) $3,732,000

Other income (218,000 – [40% x 107,000] + [40% x 88,000] – 86,000) 124,400
Gain on sale of land (11,160 + [40% x 118,000]) 58,360
Total 3,914,760
Cost of sales (1,445,000 + [40% x 605,000]) 1,687,000

Selling & admin expenses (518,000+[40% x 318,000]+18,000 + 22,000) 685,200
Other expenses (109,000 + [40% x 139,000] – 86,000 – 21,500) 57,100
Income tax (418,000 + 4,464 + [40% x 168,000]) 489,664
2,918,964
Net income $995,796
Problem 9-11
Unrealized profits After tax
Closing inventory – Prince selling 40,000
– Albert selling 72,000
Unrealized gain on equipment Jan. 1, Year 4 – Albert selling 120,000
Amount realized annually through depreciation

(120,000 / 5 years) 24,000
(a) Albert owns 64% of Prince (a subsidiary)
Investment in Prince (64% × 860,000) 550,400

Equity method income 550,400
Year 5 net income
Dividends receivable (64% × 200,000) 128,000

Investment in Prince 128,000
Year 5 dividends declared but not received
Equity method income (64% × 40,000) 25,600

Unrealized closing inventory profit – Prince selling

Unrealized closing inventory profit – Albert selling

Equipment profit realized in Year 5 – Albert selling
(b) Albert owns 30% of Prince (a joint venture)

Year 5 net income
Dividends receivable (30% × 200,000) 60,000

Year 5 dividends declared but not received

Unrealized closing inventory profit – Prince selling

Unrealized closing inventory profit – Albert selling
(Note: 70% is realized selling to the other venturers)

Equipment profit realized in Year 5 – Albert selling
(70% is realized selling to other venturers)
Problem 9-12
(a)
Fair value of plant and equipment transferred $1,380,000
Carrying amount on Amco's books 319,000
Potential gain on transfer to joint venture (Bearcat) 1,061,000
Amco's portion – 35% (unrealized) 371,350
Newstar's portion – 65% 689,650
Recognized on transfer 689,650
(the entire amount because the transaction has commercial substance)
Recognized later $0
Jan. 1, Year 1
Cash 469,000

Investment in Bearcat (1,380,000 - 469,000) 911,000
Plant and equipment 319,000
Unrealized gain - contra account 371,350
Gain on transfer to Bearcat 689,650
Dec 31, Year 1

Investment in Bearcat 69,650
Equity earnings 69,650
(35% x 199,000)
Dividend receivable 32,900

(35% × 94,000)

(371,350/ 20 years)
(b)
Since the transaction does not have commercial substance, a gain can only be recognized to
the extent of portion realized via cash regardless of whether it was received indirectly from
Newstar or borrowed by the joint venture.
Cash received by Amco (deemed to be proceeds from partial sale $469,000

Carrying amount sold (469,000 / 1,380,000 × 319,000) 108,414
Gain on transfer to Bearcat $360,586
Jan. 1, Year 1
Cash $469,000
Plant and equipment 319,000
Dec. 31, Year 1

Dividend receivable 32,900


(700,414 / 20 years)
Problem 9-13
(a)
Cost of 60% of Joker – January 1, Year 4 420,000
Shareholders' equity – Joker 600,000
60% 360,000
Allocated:
Equipment 100,000 × 60% 60,000
Balance –0–
Yearly amortization of acquisition differential (60,000 / 10) 6,000
Intercompany profits — trademark Before Tax Tax 30% After Tax

Trademark — Poker Selling $70,000
Considered realized in Year 5 (40%) (28,000)
Unrealized in Year 5 (60%) 42,000
Realized in Year 9 (one-half) 21,000 6,300 14,700
Investment income from Joker

Joker’s reported profit 147,000
Poker’s share 60%
88,200
Amortization of acquisition differential (6,000)
Realized gain on trademark 14,700

96,900
POKER INC.
Income Statement
Year ended December 31, Year 9
Sales $ 1,000,000
Investment income from Joker 96,900
Other income (200,000 – 60% x 200,000) 80,000
1,176,900
Cost of sales 600,000
Selling and administrative expenses 200,000
Other expenses 50,000
850,000
Income before income taxes 326,900
Income taxes 105,000
Profit $ 221,900
(b)
Cost of 60% of Joker – January 1, Year 4 420,000
Implied value of 100% 700,000
Shareholders' equity – Joker 600,000
Allocated:
Equipment 100,000
Balance –0–
Yearly amortization of acquisition differential (100,000 / 10) 10,000
Intercompany transactions
Management fees 50,000
Dividends (60% x 200,000) 120,000
Intercompany profits — trademark Before Tax Tax 30% After Tax

Trademark — Poker Selling in Year 5 70,000
Considered realized in Year 9 (one-half) 35,000 10,500 24,500
Poker’s profit as reported $ 245,000

Management fee — no adjustment required —
Less: dividend income (200,000 x 60%) (120,000)
Add: realized gain on patent 24,500
149,500
Joker’s reported profit $ 147,000
Amortization of acquisition differential (10,000)
137,000
286,500
Attributable to:
Shareholders of Poker 231,700
Non-controlling interest (40% x 137,000) 54,800
POKER INC.
Consolidated Income Statement
Year ended December 31, Year 9
Sales (1,000,000 + 800,000)] $ 1,800,000

Other income [200,000 + 110,000 - 50,000 - (60% x 200,000)] 140,000
Gain on sale of trademarks [40,000 + 35,000] 75,000
2,015,000
Cost of sales [600,000 + 550,000] 1,150,000
Selling and administrative expenses [200,000 + 150,000 - 50,000 + 10,000] 310,000
Other expenses [50,000 + 40,000] 90,000
1,550,000
Income before income taxes 465,000
Income taxes [105,000 + 63,000 + 10,500] 178,500
Profit $ 286,500
Attributable to:
Shareholders of Poker $231,700
Non-controlling interest (40% x 137,000) 54,800

(c)
When Joker is a subsidiary in part b), the entire gain from sale of trademarks was held back in
Year 5 whereas only 60% of the gain was held back in part a) when Joker was a joint venture.
Half of the gain held back in Year 5 was released into income in Year 9 under both methods.
Since the gain held back was higher in Year 5 in part b), the gain being released in Year 9 is
also higher.
Problem 9-14
Fair value of equipment 2,000,000

Carrying amount of equipment on Clifford's books 1,700,000
Unrealized gain on transfer of equipment 300,000
(a)
Equity method journal entries on Clifford's books:
January 1, Year 3
Investment in Jager Ltd. 2,000,000
Equipment 1,700,000
Unrealized gain – contra account 300,000
To record initial investment in Jager Ltd.
December 31, Year 3

Investment in Jager Ltd. (40% x 200,000) 80,000
Equity method income from Jager Ltd 80,000
To record 40% of net income of Jager Ltd.

Gain on transfer to Jager Ltd. 37,500
To recognize a portion of the gain on transfer of equipment to joint venture

(300,000 / 8 years expected useful life = 37,500)
(b)
Fair value of equipment 2,000,000
Carrying amount of equipment on Clifford's books 1,700,000
Potential gain on transfer of equipment 300,000
Portion recognized due to deemed sale (900K/2,000K x 300,000) 135,000
Unrealized portion –contra account 165,000
Equity method journal entries on Clifford’s books:
January 1, Year 3
Cash 900,000
Investment in Jager Ltd. 1,100,000
Equipment 1,700,000
Gain on transfer of equipment 135,000
Unrealized gain – contra account 165,000
To record initial investment in Jager Ltd.
December 31, Year 3

Investment in Jager Ltd. (40% x 200,000) 80,000
Equity method income from Jager Ltd. 80,000
To record 40% of net income of Jager Ltd.

Gain on transfer to Jager Ltd. 20,625
To recognize a portion of the gain on transfer of equipment to joint venture
(165,000 / 8 years expected useful life = 20,625)
Problem 9-15
(a)
Cost of 40% investment in Adams Co. $374,000
Implied value of 100% investment in Adams Co. 935,000
Carrying amount of Adams Co.
Common shares $478,000
662,000
Acquisition differential $273,000
NCI, date of acquisition (60% x 935,000) $561,000
(i)
Control investment – full consolidation
Intercompany profit
Before Tax After
tax 40% tax
Gain on land in Year 5
Kay Corp. selling $74,000 $29,600 $44,400
Closing inventory Year 6

Adams selling $49,000 $19,600 $29,400
Intercompany receivable/payable $43,000
Consolidated retained earnings

Kay Corp.'s retained earnings
December 31, Year 6 $731,500
687,100
Adams' retained earnings:
At acquisition 184,000
Increase 130,000
Acquisition differential amortization (273,000)
(172,400)
Kay Corp.'s percentage 40% (68,960)
Kay Corp.'s consolidated retained earnings,
Non-controlling interest: (Method 1)

Carrying amount of Adams Co.
Common shares $478,000
792,000
762,600
Non-controlling interest's percentage 60%
$457,560
Non-controlling interest: (Method 2)

NCI, date of acquisition $561,000
Change in Adam’s retained earnings since acquisition (172,400)
NCI’s share x 60% (103,440)
$457,560
Kay Corp.
Cash (74,000 + 37,000) $111,000
Accounts receivable (108,000 + 191,000 - 43,000) 256,000
Inventory (635,000 + 421,000 - 49,000) 1,007,000
Property and plant (1,428,000 + 921,000 - 74,000) 2,275,000
Deferred charge - income tax (29,600 + 19,600) 49,200
$3,698,200
Current liabilities (414,000 + 164,000 - 43,000) $535,000

Bonds payable (517,500 + 614,000) 1,131,500
$3,698,200
(ii)
Joint operation investment – proportionately adjusted financial statements
Intercompany receivable/payable (43,000 x 40%) 17,200

Intercompany profit
Before Tax After

tax 40% tax
Land
Kay Corp. selling $74,000
Considered realized 60%
Unrealized 40% $29,600 $11,840 $17,760)
Inventory
Adams selling $49,000
Kay Corp. percentage 40% $19,600 $7,840 $11,760)
Kay’s retained earnings under equity method:

Kay Corp.'s retained earnings under cost method:
Less: Unrealized gain on land (17,760)
713,740
Adams' retained earnings:
Change 130,000
Less: Acquisition differential amortization (273,000)
Adjusted change (143,000)
Kay Corp.'s percentage 40% (57,200))
656,540)
Less: Unrealized closing inventory profit (11,760))
Kay Corp.'s retained earnings under equity method
December 31, Year 6 $644,780)
Kay Corp.
Cash (74,000 + [40% x 37,000]) $88,800

Accounts receivable (108,000 + [40% x 191,000] – 17,200) 167,200
Inventory (635,000 + [40% x 421,000] – 19,600) 783,800
Property and plant (1,428,000 + [40% x 921,000] – 29,600) 1,766,800

Deferred charge - income tax (11,840 + 7,840) 19,680
$2,826,280
Current liabilities (414,000 + [40% x 164,000] – 17,200) $462,400

Bonds payable (517,500 + [40% x 614,000]) 763,100
$2,826,280
(iii)
Significantly influenced investment – equity method
Refer to calculations under part (a)
Investment in Adams Co. Ltd.

January 1, Year 2 $374,000
Less: unrealized profit on land (17,760)
356,240
Adams’ retained earnings:
Increase 130,000
Less: unrealized closing inventory profit (29,400)
100,600
Kay Corp.'s percentage 40% 40,240
Less: Acquisition differential amortization (273,000 x 40%) (109,200)
Balance December 31, Year 6 $287,280
Kay Corp.
Cash $74,000
Accounts receivable 108,000
Inventory 635,000
Investment in Adams Co. Ltd. 287,280
Property and plant 1,428,000
$2,532,280
Current liabilities $414,000

Bonds payable 517,500
$2,532,280
(b)
i ii iii

Debt $1,666,500 $1,225,500 $931,500
Equity 2,031,700 1,600,780 1,600,780
Debt to equity ratio 0.82 : 1 0.77 : 1 0.58:1
The third scenario for the significant influence investment shows the best solvency position i.e.
the lowest debt to equity ratio since it does not include any of the debt of the associate.
(c) See below for summary of journal entries.

i) Control Investment
CONSOLIDATED FINANCIAL STATEMENT WORKING PAPER

KAY CORPORATION
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, YEAR 6
Eliminations
Kay
Adams
Dr.
Cr.
Consolidated

Cash
$ 74,000
$ 37,000
$ -
$ -
$ 111,000
Accounts receivable
108,000
191,000
6
43,000
256,000
Inventory
635,000
421,000
4
49,000
1,007,000
Property and plant
1,428,000
921,000
5
74,000
2,275,000
Investment in Adams
374,000
2
457,560
1
113,360
0

4
29,400
3
792,000
5
44,400
Deferred charge - Income tax
4
19,600
49,200
5
29,600
$ 2,619,000
$1,570,000
$ 3,698,200
Current liabilities
$ 414,000
$ 164,000
6
43,000
$ 535,000
Bonds payable
517,500
614,000

1,131,500
Common shares
956,000
478,000
3
478,000
956,000
Retained earnings
731,500
314,000
1
113,360
618,140
3
314,000
Non-controlling interest
2
457,560
457,560
$ 2,619,000
$1,570,000
$ 3,698,200

$1,528,920
$1,528,920
ii) Joint Operation Investment
Eliminations
Kay
Adams (100%)
Adams (40%)
Dr.
Cr.
Consolidation

Cash
$ 74,000
$ 37,000
$ 14,800
$ -
$ -
$ 88,800
Accounts receivable
108,000
191,000
76,400
5
17,200
167,200
Inventory
635,000
421,000
168,400
3
19,600
783,800
Investment in Adams
374,000
0
0
3
11,760
1
86,720
0
4
17,760
2
316,800

Deferred income tax asset
3
7,840
19,680
4
11,840
Property and plant

1,428,000
921,000
368,400
4
29,600
1,766,800
$ 2,619,000
$ 1,570,000
$ 628,000
$ 2,826,280
Current liabilities
$ 414,000
$ 164,000
$ 65,600
5
17,200
$ 462,400
Bonds payable
517,500
614,000
245,600
763,100
Common shares
956,000
478,000
191,200
2
191,200
956,000
Retained earnings
731,500
314,000
125,600
1
86,720
644,780
2
125,600
$ 2,619,000
$ 1,570,000
$ 628,000
$ 2,826,280

.
$ 469,920
$ 469,920
iii) Significant Influence Investment
Eliminations
Kay Cost Method

Adams (100%)
Dr.
Cr.
Kay - Equity Method
Cash
$ 74,000
$ -
$ -
$ -
$ 74,000

Accounts receivable
108,000
0
108,000
Inventory
635,000
0
635,000
Property and plant
1,428,000
0
1,428,000
Investment in Adams Co. Ltd.
374,000
0
1
86,720
287,280
$ 2,619,000
$ -
$ 2,532,280
Current liabilities
$ 414,000
$ -
$ 414,000
Bonds payable
517,500
0
517,500
Common shares
956,000
0
956,000
Retained earnings
731,500
0
1
86,720
644,780
$ 2,619,000
$ -
$ 2,532,280
$ 86,720
$86,720
0

JOURNAL ENTRIES
Part a) i)
1 Retained earnings (note a) 113,360
Investment in Adams 113,360
To adjust retained earnings to equity method at end of year
2 Investment in Adams 457,560

To establish non-controlling interest at end of year

To eliminate subsidiary's shareholders' equity and
establish acquisition differential at end of Year 6

Inventory 49,000
Deferred income taxes 19,600
To eliminate unrealized profits in ending inventory

Property and plant 74,000
To eliminate unrealized profits in land
6 Accounts payable 43,000

To eliminate intercompany receivables and payables
JOURNAL ENTRIES
Part a) ii)
1 Retained earnings (note b) 86,720


To eliminate subsidiary's shareholders' equity and establish acquisition differential at end of
Year 6

Inventory 19,600
To eliminate unrealized profits in ending inventory

Property and plant (net) 29,600
To eliminate unrealized profits in land
5 Accounts payable 17,200

To eliminate intercompany receivables and payables
JOURNAL ENTRIES
Part a) (iii)
1 Retained earnings 86,720
Investment in Adams (note b) 86,720
Notes
a Consolidated retained earnings, Dec. 31, Year 6 $ 618,140
(= Kay's retained earnings, end of Year 6 under equity method)

Kay's retained earnings, end of Year 6 under cost method
731,500

Difference between cost and equity method, end of year $(113,360)
b Kay's retained earnings, end of Year 6 under equity method $644,780
Kay's retained earnings, end of Year 6 under cost method 731,500
Difference between cost and equity method, end of year $ (86,720)


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Chapter 9

Copyright  2016 McGraw-Hill Education. All rights reserved.

Copyright  2016 McGraw-Hill Education. All rights reserved.

Problem 9-1 (25 min.)

Problem 9-2 (35 min.)

Problem 9-3 (40 min.)

Problem 9-4 (50 min.)

Problem 9-5 (60 min.)

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Problem 9-7 (20 min.)

Problem 9-8 (20 min.)

Problem 9-9 (50 min.)

Problem 9-10 (25 min.)

Problem 9-11 (25 min.)

Problem 9-12 (30 min.)

Problem 9-13 (25 min.)

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Problem 9-14 (35 min.)

Problem 9-15 (60 min.)

SOLUTIONS TO REVIEW QUESTIONS

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5. In a parent–subsidiary affiliation, 100% of intercompany inventory profits are eliminated. If

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Copyright  2016 McGraw-Hill Education. All rights reserved.

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Manufacturing plant 1,215,000

Manufacturing plant (225 + 990) $1,215

Bank loan payable $990

ARBITRATION REPORT REGARDING ACCOUNTING POLICIES FOR TROPICAL JUICES

As arbitrator, it is necessary for me to apply my professional judgment and to be objective in my

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Below I have addressed the concerns raised by each of you.

Charge for bottles

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16% capital charge

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Concerns raised by previous owners of Bottle

Revenue recognition policy

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Refrigerated tanker trucks

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Users and user needs

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Prospective venturer loan

The amount can be treated either as an income-statement item or as an increase in equity.

A number of miscellaneous issues should be addressed.

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Cost to ODI Current Gain 50% of

50% of Area Amount Amortization

Genuine Investments Inc.

1. Revenue — multiple deliverables

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2. Revenue — ongoing revenue stream

4. Accounting for the reserve fund

5. Accounting for the land and building — initial cost

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