CPA Financial Accounting and Reporting (FAR) : Business Combinations & Investments
Study concepts, example questions & explanations for CPA Financial Accounting and Reporting (FAR)
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Example Questions
Example Question #1 : Consolidated Financial Statements
Of the following is not a characteristic that is used to determine the primary beneficiary of a variable interest entity under US GAAP?
The power to direct the activities of the VIE
The right to receive the expected VIE losses
The obligation to absorb expected VIE losses
Greater than 50% ownership of the VIE
Greater than 50% ownership of the VIE
Under the VIE model, the primary beneficiary is not required to have greater than 50% ownership of the VIE. The primary beneficiary is the entity that has the power to direct the activities of a VIE that most significantly impact the entity's economic performance and absorbs the expected VIE losses and/or receives the expected VIE residual returns.
Example Question #2 : Consolidated Financial Statements
Of the following characteristics, which would be used to determine the primary beneficiary of a variable interest entity under US GAAP?
More than a 50% ownership of the VIE
Ability to receive VIE residual returns
None of the answer choices are correct
A liability to accept VIE losses
More than a 50% ownership of the VIE
The VIE model states that the primary beneficiary is not required to maintain more than a 50% ownership of the VIE, rather the primary beneficiary would be the entity which has the ability to direct the activities of the ViE which most significantly impact the entity's performance and absorb expected VIE losses and receive returns.
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