question archive Equity instruments that are held for trading are required to be classified at FVTPL
Equity instruments that are held for trading are required to be classified at FVTPL
Subject:AccountingPrice:2.86 Bought7
Equity instruments that are held for trading are required to be classified at FVTPL. For all other investment in equity instruments and entity can irrevocably elect on initial recognition, on an
instrument by instrument basis, to present changes in fair value in OCI rather than profit or loss.
This is under:
a.
Both US GAAP and IFRS
b.
Neither US GAAP nor IFRS
c.
US GAAP only
d.
IFRS only
2.
Equity investments are generally required to be measured at fair value with changes
in fair value recognized in earnings. This is under:
a.
Both US GAAP and IFRS
b.
US GAAP only
c.
Neither US GAAP nor IFRS
d.
IFRS only
3..
From the standpoint of accounting theory, which of the following statements is the best
justification for the preparation of consolidated financial statements?
a.
In substance and form the companies are one entity
b.
In substance and form the companies are separate entities
c.
In substance the companies are separate, but in form the companies are one entity
d.
In substance the companies are one entity, but in form they are separate
4..
A parent company regularly sells merchandise to its 70%-owned subsidiary.
Which of the following statements describes the computation of noncontrolling interest share?
a.
(The subsidiary's net income + unrealized profits in the beginning inventory - unrealized profits in the ending inventory) × 30%
b.
The subsidiary's net income + unrealized profits in the ending inventory - unrealized profits in the beginning inventory) × 30%
c.
The subsidiary's net income times 30%
d.
(The subsidiary's net income × 30%) + unrealized profits in the beginning inventory - unrealized profits in the ending inventory
Purchase A New Answer
Custom new solution created by our subject matter experts
GET A QUOTE
Answer Preview
Summarized answers are as follows:
- A. Both US GAAP and IFRS. Under IFRS 9 and its equivalent US GAAP, trading securities are required to be measured at fair value through profit or loss (FVTPL) means any changes in the fair value between two comparative reporting period must be presented in the income statement (profit or loss), unless the management irrevocably designated to account the investments at fair value through other comprehensive income (FVTOCI) means any changes in the fair value between two comparative reporting period must be presented in the other comprehensive income (equity).
- C. Neither US GAAP nor IFRS. As discussed in the number 1, the default classification is FVTPL unless the management irrevocably designated the investments as FVTOCI.
- C. In substance the companies are separate, but in form the companies are one entity. One of the general accounting principle is substance over form meaning, accountants should always present accounting information at its substance rather than its legal form. To put it in simple words, the substance (as we know accountants because we have the sufficient knowledge) of parent and subsidiary are one and of the same group company must present one and consolidated financial statement, however, the legal form (as to general thinking of the public because they are seeing the parent and subsidiary as two separate entities) portrays that they are two different and on their own entities.
- C. The subsidiary's net income times 30%. Considering that it is the Parent Company is the one regularly selling to its subsidiary means the Parent Company is the one holding unrealized gross profit account and no unrealized gross profit accounts that needs to be eliminated in the subsidiary's net income that will affect the computation of non-controlling shares.
