Becker F3

At fair value

At amortized cost

Unrealized gains and losses on trading securities are recognized on the income statement.

Unrealized gains and losses on available-for-sale securities are reported in other comprehensive income.

Note: Under IFRS, foreign exchange gains and losses on AFS debt securities are reported on the income statement.

• Sale of security
• Transfer of the security to trading classification
• Permanent decline of individual security below cost

• - Transferred at fair value, which then becomes new basis.
• - For a security transferred into the trading category, the difference is treated as a realized gain or loss and is recognized on the income statement.
• - For a security transferred from the trading category, the unrealized holding gain or loss will already have been recognized in earnings.

Note: Transfers to and from the trading category should be rare.

Reported in earnings, consistent with reporting unrealized gains and losses on trading securities.

Reported in earnings together with the offsetting losses or gains on the available-for-sale securities attributable to the hedged risk.

• Aggregate fair value,
• Gross unrealized holding gains and losses,
• Amortized cost basis by type,
• Information about the contractual maturity of debt securities.

• Consolidate when the parent is able to control the subsidiary. Usually this is indicated by greater than 50% ownership of the voting stock of the subsidiary.
• Do not consolidate when control is not with owners (as in bankruptcy of subsidiary).

• No significant influence
• Trading or available-for-sale securities, at fair value

• Significant influence but 50% or less ownership
• Equity method

• Control
• - Cost or equity method (internal accounting)
• - Consolidated financial statements (external reporting)

• Beginning investment in investee
• + Investor's share of investee earnings
• - Investor's share of investee dividends
• - Amortization of FV differences
• Ending investment in investee

• Investor's share of investee earnings
• - Amortization of FV differences
• Equity in earnings / investee income

• U.S. GAAP
• Equity method

• IFRS
• Equity method or proportionate consolidation

• Going from the cost method to the equity method is handled like a change in accounting principle - retroactively.
• Go back retroactively with the equity method but not with the new ownership percentage.
• Prior period financial statements are restated.

When the parent company has control over the subsidiary company. Control is achieved when more than 50% of the voting stock of the subsidiary is owned directly or indirectly by the parent and no other factors are present that would indicate a lack of control (bankruptcy, reorganization).

• CARINBIG
• Dr. Common stock - Subsidiary
• Dr. APIC - Subsidiary
• Dr. Retained earnings - Subsidiary
• Cr. Investment in subsidiary
• Cr. Noncontrolling interest
• Dr. Balance sheet adjustments to fair value
• Dr. Identifiable intangible assets to fair value
• Dr. Goodwill

• Direct out-of-pocket costs are expensed.
• Stock related costs are a reduction in value of the stock issued (normally a debit to additional paid-in-capital).
• Indirect costs are expensed.
• Bond issue costs are capitalized and amortized.

• Estimable useful life: Amortized to residual value over expected useful life.
• Indefinite useful life: Do not amortize.

• U.S. GAAP
• - Goodwill is the excess of the fair value of the subsidiary (acquisitioin cost plus noncontrolling interest) over the fair value of the subsidiary's net assets, including identifiable intangible assets at FV.
• - Goodwill = Fair value of subsidiary - Fair value of subsidiary net assets.
• - Goodwill recorded in a business combination is not amortized. The entire investment is subject to the impairment test.

• IFRS
• - Goodwill is recognized using the full goodwill method (same as U.S. GAAP) or the partial goodwill method.
• - Under the partial goodwill method, goodwill is the excess of the acquisition cost over the fair value of the subsidiary net assets acquired.
• - Partial goodwill = Acquisition cost - Fair value of subsidiary net assets acquired.

NCI = FV of subsidiary x NCI %

IFRS permits the use of the full goodwill method or the partial goodwill method.

• Full Goodwill Method (same as U.S. GAAP)
• NCI = FV of subsidiary x NCI %

• Partial Goodwill Method
• NCI = FV of subsidiary net assets x NCI %

• Subsidiary net income
• x Noncontrolling interest %
• NCI in net income

The acquisition cost is allocated to the fair value of the 100% balance sheet accounts and the fair value of 100% of the identifiable intangible assets. This creates a negative balance in the acquisition account, which is recorded as a gain.

• Eliminate:
• - The effects of intercompany dividends.
• - Parent's investment in sub account.
• - The entire stockholder's equity section of the sub.
• - The effects of the gain or loss and adjust for the excess depreciation on the sale of property, plant and equipment between affiliates.
• - All intercompany sales and purchases.
• - All other intercompany balance sheet and income statement accounts.
• - Intercompany profit in cost of goods sold, and in beginning and ending inventories relating to an intercompany sale of merchandise between affiliates.

• Adjust:
• - Recognize noncontrolling interest.
• - Adjust the balance sheet of the sub to fair value.
• - Establish goodwill.

• Dr. Retained earnings (intercompany profit in beginning inventory)
• Dr. Intercompany sales
• Cr. Intercompany cost of goods sold
• Cr. Cost of goods sold (intercompany profit in goods sold)
• Cr. Ending inventory (intercompany profit in ending inventory)

• Dr. Bonds payable
• Dr. Premium (or credit discount)
• Cr. Investment in affiliate's bonds
• Cr. Gain on extinguishment of bonds (or debit loss on extinguishment of bonds)

• Dr. Intercompany gain on sale of land
• Cr. Land

• Elimination Entry 1 - Eliminate intercompany gain and adjust asset and accumulated depreciation to original amounts:
• Dr. Intercompany gain on sale of machinery
• Cr. Machinery
• Cr. Accumulated depreciation

• Elimination entry 2 - Eliminate excess depreciation:
• Dr. Accumulated depreciation
• Cr. Depreciation expense

• Companies are under common control.
• Companies are under common arrangement.
• Unconsolidated subsidiaries are combined.

• Intercompany transactions and balances among these companies are eliminated.
• Noncontrolling interests treated like consolidated financial statements.
• Capital stock and retained earnings are added across, not eliminated.
• Income statements are added across.

• Reports assets and liabilities at fair value in separate financial statements of subsidiary. In effect, consolidation adjustments are "pushed down" into the records.
• - Assets and liabilities are adjusted to fair market value at date of acquisition.
• - Retained earnings of the subsidiary are transferred to paid-in capital.
• - Net income of each subsidiary includes depreciation, amortization, and interest expense based on fair values rather than historical cost.
• - The SEC requires push down accounting for each "substantially wholly-owned subsidiary."

A corporation, partnership, trust, LLC or other legal structure used for business purposes that either does not have equity investors with voting rights or lacks sufficient financial resources to support its activities.

• The entity with the power to direct the activities of the VIE that most significantly impact the entity's economic performance and:
• 1. Absorbs the expected VIE losses, or
• 2. Receives the expected VIE residual returns.
• The primary beneficiary must consolidate the VIE.

The entity that absorbs the expected losses consolidates.