Summary: Samenvatting Financial Accounting
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1
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Business combinations can have several legal apprearances:
* Purchase of shares
* Purchase of net assets
* Legal mergers
* Establishment of new entities to control the combining entities
* Reverse acquisition -
Voting rights could give power, but there are rights other than voting:
* Purpose and design (IFRS 10.B5-8)
* Evidence of practical ability to direct (IFRS 10.B18/21)
* Special relationships (IFRS 10.B19)
* Exposure to veriability to return (IFRS 10.B20) -
Purpose and design (IFRS 10.B5-8)
Ø involvement and decision made at inception about contracts, risks, opportunities – may indicate that investor has the opportunity to obtain rights that are sufficient to give it power
Ø Contractual arrangement established at investee’s inception
Ø Investor’s commitments to continued operation of investee – may increase investor’s exposure to variability of returns and thus increase incentives to obtain rights that are sufficient to give it power -
Evidence of practical ability to direct (IFRS 10.B18/21)
Could be the appointment of key management personnel, directing investee to inter into a significant transaction for investee’s benefit or dominating either nominations process for electing members of investee’s governing body or obtaining of proxies from other holders of voting rights. -
Special relationships (IFRS 10.B19)
Sometimes there will be indications that the investor has a special relationship with the investee, which suggests that the investor has more than a passive interest in the investee. -
Exposure to variability of returns (IFRS 10.B20)
Having a large exposure to variability of returns is an indicator that the investor may have power. -
Exposure to variability in returns
Does the entity get exposed to the variable returns from its investment? (IFRS 10.15/16 & B55-57) -
Ability to use power to affect the returns
Will the entity able to use power to affect the returns? (IFRS 10.17/18 & B58-72) - link between power and return. -
What are the two exemption from IFRS 3?
· Joint arrangements – arrangement in which two or more parties have joint control (IFRS 11)
· Entities or business under common control – have the same ultimate parent -
What are the two kinds of joint arrangements? (IFRS 11.4-7)
* Joint operations (IFRS 11.15/20)
* Joint ventures (IFRS 11.16/24)
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