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

## Multinational Operations/Currencies

Under the Schweser topic review of multinational operations, I came across the following quotes :-

USD/LC 0.4545

USD/LC 0.4000

USD/LC 0.4292

USD/LC 0.5000

Do these quotes imply that 1 USD = 0.4545 LC, and so on, or do they imply that 1 LC = 0.4545 USD?

## Benefit Obligation

Per the Example 4 pg 95 CFA book question

[question removed by moderator]

The answer in the book is :

For A Liability is 106 +50738 divided by

Equity is  8,823 - 106

Why are the subtracting the increase in obligation from Equity?

Thanks

## SPE Transactions

When a company sells its receivables to a SPE, does it record it as revenue?

• are receivables recorded as cost of sales?
• if the company makes a \$10M equity investment into the SPE, would that \$10M show up on the investment account like with other transactions using the equity method?

## Held for trading bond (debt securities)

Can anyone explain me if a held for trading bond or debt security has to account for amortization to calculate any unrealized gain or loss?

## Equity Method for excess purchase price

Figured it out

IFRS Hyperinflation

So, in the reading for multinational operations, CFAI book’s Example 7 restates the balance sheet and income statement for inflation and recognizes a purchasing power gain in the income statement. Then, every single account in both financial statements (including the purchasing power gain) is multiplied by the current exchange rate and then the book states this: “Note that all inflation-adjusted FC amounts are translated at the current exchange rate, and thus no translation adjustment is needed.”

## How to account for associate income and dividends?

A few questions on intercompany investments with associates:

1. Let’s say the parent owns 50% of the subsidiary; the sub’s income is \$100k and assumes no dividends paid, the parent’s investment account of the sub increases by \$50k. Why are we accounting for the value of the sub through its net income, and not its fair value change?

2. When the investment account increases by \$50k for the parent, how is this increase balanced? Is it in shareholder’s equity?

## IFRS Hyperinflation

IFRS Hyperinflation

So, in the reading for multinational operations, CFAI book’s Example 7 restates the balance sheet and income statement for inflation and recognizes a purchasing power gain in the income statement. Then, every single account in both financial statements (including the purchasing power gain) is multiplied by the current exchange rate and then the book states this: “Note that all inflation-adjusted FC amounts are translated at the current exchange rate, and thus no translation adjustment is needed.”

## Application of Temporal and Current method

How to decide when to use Temporal or Current Accounting method?