Okay here are my questions. 1. Q. 13 - How come all the net income of the subsidiary Columbus not consolidated? It is using the calculation (.60 * 65) as if to use the equity method? Is this an error? 2. Q 13 - The classifying Marco as available for sale instead of equity is the most chicken-sh!t thing I have EVER seen. I guess I understand it but come on. 3. Q 16 - If Columbus loses board seats it still controls 60%. Why would they not continue to use consolidation method. 4. Q 17 If De Soto loses influence they still own 30% and should use the equity method. 5. Q 15 Okay this one really gets me. How come you cannot calculate the market to market return on De Vaca? I know you can’t calculate the market value but you could certainly calculate the dividends received. I don’t get this at all. In conclusion it looks as though CFAI doesn’t like the % of ownership rules to determine cost, equity, consolidation. Being as these are approximations in themselves as opposed to hard rules we are in trouble if this comes up.
Dude, that vignette made me throw up in my mouth and then punch a 6 year old girl at my town library
Nothing like learning all these rules for the first time on a sample exam… T/G
for number 1, remember net income and equity stay the same for all methods of acccounting for investments… so you consolidated it and took out the minority interest, the 40% or whatever it was you didn’t own.
^ That’s right.
for 5, you did include the dividend, but you there was no mkt price so you couldn’t get total return. also, that desoto question was hammering away at the fact that the % are just guidelines and the real decision lies on how much influence or control they have… even if a company has 30% of stock, if they have 0 influence (which seems unrealistic to me) it should be accounted for using cost or mkt.
and i also thought that losing board seats question was crap and vague at best…
divs were not included for the private firm in the mark to mkt q
thepinkman Wrote: ------------------------------------------------------- > In conclusion it looks as though CFAI doesn’t like > the % of ownership rules to determine cost, > equity, consolidation. Being as these are > approximations in themselves as opposed to hard > rules we are in trouble if this comes up. exactly, i think that is the big takeway from this vignette and i’m expecting to see some sh*t like this on the test…
Q13: they tell you that there;s a majority holder that exercises control over ops. Control supercedes % ownership. Always. same thing for Q16 & 17 If there’s anything in the question that hints at control - go with that, forget about how much they own Q15: because there’s no market to mark to. Im pretty sure that securities of closely held companies are never marked to market… hopefully one of the FSA gurus around here will confirm this
sorry i’m losing it for Q15: Where does it state in CFA or Schweser that marketable securities are where the company does not have the ability to exercise significant influence or control. Can’t seem to find this.