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Study Session 5: Financial Reporting and Analysis: Intercorporate Investments, Post-Employment and Share Based Compensation, and Multinational Operations

Is IAS 39 still relevant?

Now that IFRS 9 has been effective since Jan 1 2018, does this make IAS 39 irrelevant? 

I really can’t see the point in learning about a redundant accounting standard; or am I being naive? 

Intercorporate Investments EOC Q.7

Hi Guys,

This is probably a really basic question but I cant get my head around. Any assistance would be hugely appreciated.

Hopefully without having to post the whole text from the vignette question and 2x financial statements for Zimt and Oxbow.

7. In 2009, Zimt’s earnings before taxes includes a contribution (in € millions) from its investment in Oxbow Limited closest to:

 Can someone please explain to me how the net effect of Zimt’s stake in Oxbow would be reduced Zimt’s income before taxes by €1 million in 2009?

What does Net Stable Funding Ratio mean conceptually?

“is expressed as the minimum percentage of a bank’s required stable funding that must be sourced from available stable funding.”

Can anyone provide a better explanation of this?

Defined benefit: What is rationale behind doing tax-adjustment on cash-flows that we reclassify from operating to financing?

Let’s say we have employer contributions of $100, total periodic pension cost of $90, and an effective tax rate of 25%.  I understand that the employer’s contribution in excess of the pension cost (i.e., $100 - $90 = $10) can be viewed as an outflow from financing. 

But what is the rationale behind reclassifying the cashflow (for analytical purposes) on an after-tax cash basis?  Using the example above, the text’s suggested approach would be to increase CFO by $7.5 and decrease CFF by $7.5 (instead of by $10).

CFAI FRA Reading 16 - EOC #33

The question here asks what the total value of intangible assets for Ngcorp’s (not the multinational parent Ambleu) balance sheet at 12/31/2016. Because of this, I chose A, the carrying value of the intangible assets after translating the value from NVK on 7/15/2016. However the correct answer is B, but I do not understand why adjusting the intangible asset value for FX movement at the end of the year makes sense.

Intercorporate Investments: What is the treatment of equity accounts when doing proportional consolidation?

When accounting for an investment via proportionate consolidation, what is the treatment of the investee’s accounts on the balance sheet?

For example, let’s say that ParentCo is accounting for its 50% stake in ChildCo, which has Assets of $100, Liabilities of $80, and Equity of $20.  From the CFAI text, we know that ChildCo’s Assets, Liabilities (and Revenues, Expenses) are proportionally consolidated with ParentCo.  So, ParentCo would include its share of ChildCo’s Assets and Liabilities, which are $50 and $40, respectively. 

FRA

In case of AFS, why do unrealized gains/losses go to OCI but in case of trading, it goes to PnL?

CFAI FRA Reading 15 - Example 4 #3

This question is asking us to determine the impact of an increase in the health care trend rate on a company’s debt to equity ratio. Given the rate increase, the PBO increases (and thus liabilities increases). Additionally, stockholder’s equity decreases by the same amount. Is this because this is a change in actuarial assumption? The actuarial loss decreases OCI and thus stockholder’s equity? It seems logical to me, but any clarification will help. Thanks!

Fair Value Reporting for Debt Securities

Hey guys.

Imagine you bought a bond at $110 (premium) and at the end of the year, the fair value is $115. My questions are:

  1. Would the interest income be always as the effective interest rate?

  2. In the Financial Statements, would we use the carrying value at amortized cost and submit adjustments to fair value in another category of the BS? or we would just record the changes in the bond and any unrealized gain/loss be in retained earnings?

Equity method & Fair value (inv.in associates)

Quick question, assuming US GAAP, if you decide to record inv in associates under the fair value method instead of equity method, what would happen to the amount recorded if your investment (lets assume is on a publicly traded company) had a drop in the market value ? Would the unrealized loss have to be recognize on the I/S or through OCI ? Is this remotely related to an impairment ?