Essay about Variable Interest Entities

Words: 888
Pages: 4
Open Document
Date: October 11, 2011
To: Mr. Philip Long
From: Mr. Kunal Patel
Subject: Recommendations
Introduction
Below are my recommendations to Mr. Philip Long, the CFO of DeviceCo, regarding tasks he has assigned me to do. The tasks entail answering the following questions in my analysis of whether LeaseMed is a Variable Interest Entity (VIE) and if DeviceCo should consolidate LeaseMed as a primary beneficiary: (1) Does DeviceCo qualify for the business scope exception, (2) Does LeaseMed have sufficient equity to finance its activities without additional subordinated financial support, and on the basis of that answer, is LeaseMed a VIE, and (3) Is DeviceCo still required to consolidate LeaseMed as its primary beneficiary? …show more content…
Also, if you look at the quantitative assessment, the $1 million in total equity that LeaseMed has is insufficient to cover the expected losses of over $1 million. Therefore, since LeaseMed has total equity at risk that is insufficient to finance the entity’s activities, LeaseMed is considered a VIE (ASC 810-10-15-14).
Rationale – Is DeviceCo Still Required to Consolidate LeaseMed as its Primary Beneficiary?
Since LeaseMed is a VIE, the primary beneficiary must have both (1) The power to direct the activities of a VIE that most significantly impact the VIE’s economic performance, and (2) The obligation to absorb losses of the VIE that could potentially be significant to the VIE or the right to receive benefits from the VIE that could potentially be significant to the VIE (ASC 810-10-25-38A). DeviceCo and Pharmador have equal vote and board representation. Due to this, neither have the power to direct the activities that most significantly impact the VIE’s economic performance. Therefore, neither DeviceCo nor Pharmador are required to consolidate LeaseMed as its primary beneficiary.
Conclusion
To conclude, these were the recommendations that I came up with after going over the situation step-by-step and researching ASC 810-10. As
Show More

Related Documents: Essay about Variable Interest Entities

Management Accounting and Contribution Margin Essay

point, contribution margin, fix cost, variable cost, margin cost, net profit High–low method to separate fixed costs from variable costs STEP 1: Calculate the variable cost per unit Variable cost per unit = Change in total cost ÷ Change in volume of activity STEP 2: Calculate the total fixed cost Total fixed cost = Total mixed cost – Total variable cost STEP 3: Create and use an equation to show the behaviour of a mixed cost Total mixed cost = (Variable cost per unit × number of units) + Total…

Words 708 - Pages 3

The Effect of Derivatives Usage on Firm Value and Performance Essay

The Effect of Derivatives Usage on Firm Value and Performance: The Study on Malaysian Publicly Listed Firms Between 2008 and 2012 An undergraduate thesis proposal Presented to the Accountancy Department De La Salle University 2401 Taft Avenue, Manila, Philippines in partial completion of the course requirements of Bachelor of Science in Accountancy Camposagrado, Raphael Luis C. de Vera, Jan Neil P. Garcia, Carlos Oliver G. De La Salle University August 2013 Table of Contents…

Words 12992 - Pages 52

Management Control System of a Bank Essay

By O S Mukundan 08BS0002087 CONCEPT OF VARIABLES AND KEY VARIABLES In an organization, a variable is considered as an ordinary indicator of any business activity, whose sudden and unpredictable change warrants immediate action by the management. The nature of task, the technology and the environment in which the organization operates are the factors which greatly influence the identification of variables. An important function of an variable is that they indicate to the management the necessity…

Words 2115 - Pages 9

accounting review Essay

not personally liable. Need to pay tax). Accounting’s objective: to provide financial information about the reporting entity that is useful to existing investors, lenders and other creditors that in making decisions about providing resources to entity. Assumptions & Principles: Entity assumption(A business is a separate economic unit); The continuity (going concern) assumption(Entity will continue to exist indefinitely); The historical cost assumption(Assets recorded at purchase price); The stable-monetary-unit…

Words 1956 - Pages 8

financial reportog Essay

7.6 Testing for Goodwill Impairment. The tests for goodwill impairment are similar under U.S. GAAP and IFRS. Goodwill is not considered a separable asset; therefore, goodwill impairment is assessed at the reporting unit (U.S. GAAP) or cash-generating unit (IFRS) level. If the fair value of a unit exceeds its carrying amount (after impairment tests for tangible and intangible assets other than goodwill have been performed and carrying amounts adjusted), goodwill is impaired. The amount of goodwill…

Words 2106 - Pages 9

Florabama Case Study: Meyer And Saban Inc.

Florabama an independent power producer classified as a Variable Interest Entity (VIE) owns, power plant located in south western United States. Meyer and Saban Inc. are the investor of Florabama they contributed equal amount of equity their ownership 60% and 40. Both Meyer and Saban are independent and willingly agreed upon prior to the board terms. The agreement allows Saban to purchase 20% of power produced by Florabama at cost plus. Both Meyer has operating risk because Meyer owns majority of…

Words 409 - Pages 2

Lecture1 Introduction Sem1 2015 3 per page Essay examples

statements, some accounting requirements (eg inventory, PPE) - Level 2 - Knowledge of all prior study assumed - Regulatory and financial reporting framework, reporting requirements, - Level 3 - Knowledge of all prior study assumed - From single reporting entity to group financial reporting 5 Before we begin, let’s take stock of where we are at… › As you work up through the levels: - Increasing role of professional judgement - apply knowledge of accounting and understanding the effect on financial reports…

Words 3051 - Pages 13

Balance Sheet: Statement of Financial Position Essay

annually) Transactions that affect the income statement will also affect the balance sheet Income Statement is a link between the Balance sheet at the beginning and end of the year Net Income for a period of time Purpose: to ask the question “Did the entity operate at a Profit for the period?” Cash Flows Accomplished by reporting the changes in all of the other balance sheet items Cash flows from operating activities Uses net income from the Income Statement Cash Flows from Investing Activities Shows…

Words 1597 - Pages 7

Essay on Monetary Policy and Inflation

keep reserves or make loans when reserves do not pay interest? If the bank makes no money while that money is sitting in the bank, it would want to loan it out to make an interest on it. So loan it out. b. What would be the danger if the Federal Reserve set an interest rate on reserves close to the market interest rate on loans? By increasing the interest rate paid on reserves, the Fed will be able to put upward pressure on market interest rates because banks will not want to lend to the public…

Words 986 - Pages 4

Accounting Policies For Financial Statements

costs and economic weaknesses and currency devaluation in Venezuela. As of January 1, 2010, Goodyear, "adopted a new standard pertaining to the consolidation of variable interest entities that required us to determine whether a variable interest gives the Company a controlling financial interest in a variable interest entity". In the same period, Goodyear adopted a new accounting standard referring to transfer "of financial assets and extinguishment of liabilities." The adoption of the new…

Words 2533 - Pages 11