2.1 Explain The Principles Of And Barriers To Effective.
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Intercorporate Investments The Barrierss should be able to: a. Multinational Operations The candidate should be able to: a. Analysis of Financial Institutions The candidate should be able to: a. Evaluating Quality of Financial Reports The candidate should be able to: a. Capital Budgeting The candidate should be able to: a. Capital Structure The candidate should be able to: a. Analysis of Dividends and Share Repurchases The candidate should be able to: a.
Mergers and Acquisitions The candidate should be able to: a. The following is a review of the Financial Reporting and Analysis 1 principles designed to address the learning outcome statements set forth by CFA Institute.
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Spend the time necessary to learn how and when to use each method of accounting for intercorporate investments because the probability of this material being tested is high. Be able to determine the effects of each method on the financial statements Barridrs ratios. Pay particular attention to the examples illustrating the difference between the equity method and the acquisition method.
LOS Percentage of ownership or voting control is typically used to determine the appropriate category for financial reporting purposes. However, the ownership percentage is only a guideline. Investments in financial assets. In this case, the investor cannot significantly influence or control the investee.
Investments in associates. Significant influence can be evidenced by the following: Board of directors representation. Involvement in policy making.
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Material intercompany transactions. Interchange of managerial personnel. Dependence on technology. In this case, the investment is considered an investment in associates. The equity method is used to account for investments in associates.
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Business combinations. When the investor can control the investee, the acquisition method is used. For example, control can be temporary or barriers may exist such as bankruptcy or governmental intervention.
In these cases, the investment is not considered controlling.]
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