The Statement:if one entity absorbs the majority of the variable interest entity residual income and another entity absorbs the majority of the VIE’s losses, then the entity that is absorbing the residual income needs to consolidate the VIE
Correct answer:the statement is incorrect as it should be the entity that is absorbing the majority of the VIE’s losses that needs to consolidate the VIE.
Why?isn’t SPE regarded as VIE and must consolidated when
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Equity less than 10%
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Shareholder don’t have decision making
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Shareholder don’t absorbs losses
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Shareholder don’t receive residual return