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Financial Reporting and
Analysis
2019 Instructor: Jackie & Vivian
1

Brief Introduction
Topic weight:
Study Session 1-2
Ethics & Professional Standards
10%-15%
Study Session 3
Quantitative Analysis
5%-10%
Study Session 4
Economics
o5%-10% 10%-15%
Study Session 5-6
Financial Reporting and Analysis
Study Session 7-8
Corporate Finance
5%-10%
Study Session 9-11
Equity Valuation
10%-15%
Study Session 12-13
Fixed Income
10%-15%
Study Session 14
Derivative Investment
5%-10%
Study Session 15
Alternative Investment
5%-10%
Study Session 16-17
Portfolio Management
5%-15%
Weights: 100%
2

Contents
Content:
➢ Study Session 1: FINANCIAL REPORTING AND ANALYSIS (1)
• Reading 14: Intercorporate Investments★★★
• Reading 15: Employee Compensation: Post-Employment and Share-
Based★★★
• Reading 16: Multinational Operations★★★
• Reading 17: Analysis of Financial Institutions ★★
➢ Study Session 2: FINANCIAL REPORTING AND ANALYSIS (2)
• Reading 18. Evaluating Quality of Financial Reports ★★
• Reading 19: Integration of Financial Statement Analysis Techniques★
3

Brief Introduction
考纲对比:
➢ 与2018年相比，2019年FRA的考试权重调整为10% ~
15%。
➢ 与2018年相比，2019年的考纲增加了一个章节:
Reading 17 Analysis of Financial Institutions。
4

Brief Introduction
学习建议:
➢ 财报质量的考查可能会穿插一级财务报告与分析的知识点 ，在学习二级新知识点的同时应适当复习一级财务报告与 分析的重要知识点;
➢ 一定要在理解知识点的基础上通过做题达到熟练运用的目 的。
➢ 推荐使用官方教材正文中的例题、课后习题和官方历年模 考题复习巩固知识点。
5

Intercorporate Investments
Investments in Financial Assets
Tasks:
➢ Describe the classification, measurement, and disclosure under International Financial Reporting Standards (IFRS) for financial assets.
➢ Distinguish between IFRS and US GAAP in the classification, measurement, and disclosure of financial assets.
6

Intercorporate Investments
Definition of intercorporate investments
➢ Intercorporate investments in marketable securities are categorized as follows:
✓ Investments in financial assets (has no significant influence) ✓ Investments in associates (has significant influence)
✓ Business combinations (has control over the investee firm) ✓ Joint ventures (the right of control is shared by entities)
7

Intercorporate Investments
The classification of categories
➢ Percentage of ownership is typically used to determine the appropriate category. However, the ownership percentage is only a guideline.
➢ Ultimately, the category is based on the investor’s ability to influence or control the investee.
8

Categorization of Investment
Financial Assets
Associates
Business Combination
Joint Ventures
Degree of influence
No significant
Significant
Control
Shared control
Typical percentage of interest
< 20%
20% - 50%

50%
Varies
Term of investee
N/A
Associate
Subsidiary
N/A
Accounting treatment
✓ HTM
✓ AFS
✓ Fair value
through Profit / Loss
Equity method
Acquisition method
Equity method
9

Financial Assets
Definition of financial assets
➢ The classification below only applies to equity or debt investment with no significant influence (percentage of interests < 20%) :
• HTM is only for debt securities
• Available for sale security (AFS)
• Fair value through P/L (including trading securities &
designated at fair value)
➢ GAAP and IFRS are the same about the classification.
10

Financial Assets
Held-to-maturity investments
➢ Held-to-maturity investments are investments in financial assets with fixed or determinable payments and fixed maturities (only debt securities) that the investor has the positive intent and ability to hold to maturity.
11

Financial Assets
Held-to-maturity investments(Cont.)
➢ Initial recognition (similar under IFRS & US GAAP)
• IFRS: recognized at fair value.
• US GAAP: recognized at initial price paid.
➢ Held-to-maturity securities are reported on the balance sheet at amortized cost.
• Amortized cost is simply the present value of the
remaining cash flow (coupon & face value).
12

Financial Assets
Fair value through profit and loss
➢ Held-for-trading securities (Equity & Debt)
• Securities acquired with the intend to sell them in the near
term. (usually less than 3 months)
• Reported on the balance sheet at fair value.
• Both realized and unrealized gain and loss are recognized
in the income statement. ➢ Designated at fair value
• Designating financial assets at fair value regardless the holding intention.
• The treatment is similar to that of trading securities.
13

Financial Assets
Available for sale securities
➢ Not classified as held to maturity and fair value through profit and loss securities.
➢ Available for sale securities are reported on the balance sheet at fair value.
➢ Realized gain and loss are recognized on income statement.
➢ Unrealized gain and loss are recognized on equity (OCI).
➢ Accounting treatment of available for sale securities when
foreign exchange rate is changing.
• Next slide
14

Available for Sale Securities
Foreign exchange rate changes
➢ Debt:
• US GAAP: All change in fair value of available for sale
investments is recognized in OCI.
• IFRS:
✓ Recognize foreign exchange gain or loss in income
statement.
✓ Recognize other changes in fair value in OCI.
➢ Equity:
• Recognize all changes of fair value in OCI.
(Both US GAAP and IFRS)
15

Summary of Classification of Financial Assets
Held-to-Maturity
Fair value through profit or loss
Available-for-Sale
Balance Sheet
Amortized cost
Fair value
✓ Fair value ✓ Unrealized
G/L (OCI- Equity)
Income Statement
✓ Interest (including
amortization) ✓ Realized G/L
✓ Interest & Dividends
✓ Realized G/L ✓ Unrealized G/L
✓ Interest & Dividends
✓ Realized G/L
16

Example
Accounting For HTM Bonds at a Discount
Ledesma Corp bought a 3-year $1,000 par value bond with an annual coupon of 10% at $951.96. The effective interest rate, which equates with the market interest rate, is 12%.
Asset on BS
Interest Income
Coupon Received
Interest Amortisation
Year 1
951.96
114.24
100
14.24
Year 2
966.20
115.94
100
15.94
Year 3
982.14
117.86
100
17.86
Bond
1,000
redemption
17

Example
Accounting For HTM Bonds at a Premium
Illiquid Corporation bought a 3-year $1,000 par value bond with a coupon of 20% at $1,131. The effective interest rate, which equates with the market interest rate, is 14.33%.
Asset on BS
Interest Income
Coupon Received
Interest Amortisation
Year 1
1,130.88
162.05
200
-37.94
Year 2
1,092.93
156.62
200
-43.39
Year 3
1,049.55
150.40
200
-49.60
Bond
1,000
redemption
18

Example
A company purchased a 9% bond with a face value of $100,000 for $96,209 to yield 10%. The coupon payments are made annually at year end. The fair value of the bond at the end of the year is $98,500.
Determine the impact on the firm’s B/S and I/S if the bond investment is classified as held-to-maturity, fair value through profit or loss and available- for-sale.
19

Example
Held-to-maturity
➢ The balance sheet value is based on amortized cost.
➢ At year-end, the company recognizes interest revenue of $9,621
($96,209 × 10%). — Income statement
➢ At year-end, the bond is reported on the balance sheet at
$96,830 ($96,209 + $9,621 - $9,000). — Balance sheet
20

Example
Fair value through profit and loss
➢ The balance sheet value is based on fair value of $98,500.
➢ At year-end, the company recognizes interest revenue of $9,621
($96,209 × 10%). — Income statement
➢ The unrealized gain of $1,670 ($98,500 - $96,209 - $621) are
recognized in the income statement.
21

Example
Available for sale
➢ The balance sheet value is based on fair value of $98,500.
➢ At year-end, the company recognizes interest revenue of $9,621
($96,209 × 10%). — Income statement
➢ The unrealized gain of $1,670 ($98,500 - $96,209 - $621) are
recognized in other comprehensive income. (OCI)
22

Summary
➢ Importance: ☆☆ ➢ Content:
• The classification, measurement of financial assets under both IFRS and US GAAP.
➢ Exam tips:
• 定性、定量掌握Financial Assets的初始确认的原则、后续
计量的方法。
• 掌握IFRS和USGAAP对FinancialAssets计量的异同点。
23

Intercorporate Investments
Reclassification of Financial Assets
Tasks:
➢ Describe the measurement (reclassification) of investments in financial assets under IFRS.
➢ Distinguish between IFRS and US GAAP in measurement (reclassification) of investments in financial assets.
24

Reclassification of Financial Assets
IFRS
➢ IFRS typically does not allow reclassification of investments into or out of the designated at fair value category.
➢ Reclassification of investments out of the held-to-trading category is severely restricted under IFRS.
25

Reclassification of Financial Assets
IFRS (Conts)
➢ Debt securities initially designated as available-for-sale may be reclassified to held-to-maturity if a change in intention or ability has occurred.
➢ Held-to-maturity securities can be reclassified as available-for- sale if the holder no longer intends or is no longer able to hold the debt to maturity.
26

Reclassification of Financial Assets
U.S. GAAP
➢ U.S. GAAP allows reclassifications of securities between all categories when justified.
➢ Fair value of the security is determined at the date of transfer.
➢ The treatment of unrealized holding gains and losses on the
transfer date depends on the initial classification of the security.
27

Summary - IFRS
Transfer from
Transfer to
Accounting Treatment
Designated at fair value
Any type of Investments
Prohibited
Hold-for- Trading
Any type of Investments
Severely restricted
Hold-to- Maturity
Available-for- Sale
Remeasure at fair value at transfer date, difference between carrying value and fair value reported in O.C.I.
Available-for- Sale (Debt)
Hold-to- Maturity
Remeasure at fair value at transfer date as amortized cost.
O.C.I. bal. and difference between amortized cost and maturity value should amortized in I/S during remaining life of debts using the effective interest method.
28

Summary – US GAAP
Transfer from
Transfer to
Accounting Treatment
Hold-for- Trading
Available-for- Sale
Unrealized G/L (difference between carrying value and current fair value) should be reported in I/S.
Available-for- Sale
Hold-for- Trading
Accumulated amount in OCI should be recognized in I/S on the date of transfer.
Hold-to- Maturity
Available-for- Sale
Unrealized G/L (difference between fair value and amortized cost) reported in O.C.I.
Available-for- Sale (Debt)
Hold-to- Maturity
Accumulated amount in OCI should be amortized over remaining life of the security as an adj. of interest income as the same manner as premium or discount.
29

Summary
➢ Importance: ☆☆ ➢ Content:
• The treatment of reclassification of investments in financial assets under both IFRS and US GAAP.
➢ Exam tips:
• 定性掌握IFRS和USGAAP对于InvestmentinFinancialAssets
重分类的计量方法。
30

Intercorporate Investments
Impairment of Financial Assets
Tasks:
➢ Describe the measurement (impairment) of investments in financial assets under IFRS. ➢ Distinguish between IFRS and US GAAP in
measurement (impairment) of investments in financial assets.
31

Impairment of Financial Asset
Both U.S. GAAP and IFRS
➢ U.S. GAAP and IFRS require that held to maturity and available for sale securities be evaluated for impairment at each reporting period.
➢ It’s not necessary for fair value through profit and loss securities because declines in their value are recognized on the income statement as they occur.
32

Impairment of Financial Asset
Under IFRS (Impair indication)
➢ For debt security, impairment is indicated if at least
one loss events has occurred, and its effect on the
security’s future cash flows can be estimated reliably. ✓ Losses due to occurrences of future events
(regardless of the probability of occurrence) are not recognized.
33

Impairment of Financial Asset
Under IFRS (Impair indication)
➢ For the debt security, the loss events are including:
✓ The issuer experiences significant financial difficulty; ✓ Default or delinquency in interest or principal
payments;
✓ The borrower encounters financial difficulty and
receives a concession from the lender as a result;
and
✓ It becomes probable that the borrower will enter
bankruptcy or other financial reorganization.
34

Impairment of Financial Asset
Under IFRS (Impair indication)
➢ For the debt security, the following events are not by
itself evidence of impairment:
✓ The lack of an active market;
✓ A downgrade of an entity’s credit rating or a decline
in fair value of a security below its cost or amortized cost.
35

Impairment of Financial Asset
Under IFRS (Impair indication)
➢ For the equity security, impairment is indicated if at
least one loss events has occurred:
✓ Significant changes in the technological, market, economic, and/or legal environments that adversely affect the investee and indicate that the initial cost of the equity investment may not be recovered.
✓ A significant or prolonged (持续性的) decline in the fair value of an equity investment below its cost.
36

Impairment of Financial Asset
Under IFRS (Measurement of impairment)
➢ Impairment of held to maturity securities
✓ Impaired if its carrying value > PV of cash flow
(expected permanently)
✓ Impairment loss is recognized on income statement.
➢ Reversal
✓ If the recovery can be attributed to an event (eg:
credit upgrade), the impairment loss can be reversed.
37

Impairment of Financial Asset
Under IFRS (Measurement of impairment) ➢ Impairment of available for sale securities ✓ Impaired if its carrying value > fair value
✓ Impairment loss is recognized on income statement.
➢ Reversal
✓ Impairment losses on AFS debt securities can be
reversed if a subsequent increase in fair value can be objectively related to an event occurring after the impairment loss was recognized in profit or loss.
✓ Impairment losses on AFS equity securities cannot be reversed through profit or loss.
38

Impairment of Financial Asset
Under IFRS (Measurement of impairment)
➢ Impairment of available for sale securities
✓ Cumulative loss in OCI is reclassified to income
statement.
• Cumulative loss = Acquisition cost – current fair
value – impairment loss that has previously been recognized in income statement.
39

Impairment of Financial Asset
Under U.S. GAAP
➢ A security is considered impaired if its decline in value is determined to be other than temporary. For both held to maturity and available for sale securities, the write down to fair value is treated as a realized loss. (recognized on the income statement).
➢ A subsequent reversal of impairment losses is not allowed.
✓ For ASF securities (both debt and equity), subsequent changes
in fair value are treated as unrealized gains or losses and included in OCI.
40

Summary
➢ Importance: ☆☆ ➢ Content:
• The treatment of impairment of investments in financial assets under both IFRS and US GAAP.
➢ Exam tips:
• 掌握IFRS和US GAAP对于Investment in Financial Assets
重分类的计量方法。
41

Intercorporate Investments
Investment in Financial Assets: IFRS 9
Tasks:
➢ Describe the classification, measurement and reclassification of investment in financial assets under IFRS 9.
42

IFRS 9 (New Standards)
IFRS 9 (New Standards)
➢ IFRS 9 does away with the terms held for trading, available for sale, and held to maturity. Instead, the three classifications are:
• Amortized cost
• Fair value through profit or loss (FVPL)
• Fair value through other comprehensive income
(FVOCI).
43

IFRS 9 (New Standards)
IFRS 9 (New Standards)
➢ Amortized cost (Debt only), 2 criteria:
• Business model test: Debt securities are being held to collect contractual cash flow.
• Cash flow characteristic test: The contractual cash flows are solely payments of principal and interest on principal.
44

IFRS 9 (New Standards)
IFRS 9 (New Standards) ➢ FVPL (Debt & Equity)
• Debt: Held for trading or if recognized as amortized cost will results in an accounting mismatch.
• Equity: Held for trading must be classified as FVPL; Others may be classified as either FVPL or FVOCI, irrevocable.
➢ FVOCI (Debt & Equity)
• Same as available for sale securities.
45

Summary of IFRS 9
46

Summary
➢ Importance: ☆ ➢ Content:
• IFRS 9对Financial Assets的分类标准和计量方法。 ➢ Exam tips:
• 主要考查定性的概念及辨析。
47

Intercorporate Investments
Investment in Associates
Tasks:
➢ Describe the classification, measurement, and disclosure under International Financial Reporting Standards (IFRS) for Investment in Associates.
➢ Distinguish between IFRS and US GAAP in the classification, measurement, and disclosure of Investment in Associates.
48

Definition of Associates
Definition of Associate
➢ When a company holds 20% - 50% of the voting rights of an associate, it is presumed that the company has significant influence, but not control, over the investee’s business activities.
• Representation on the board of directors
• Participation in the policy-making process
• Material transactions between the investor and the investee
• Interchange of managerial personnel
• Technological dependency
49

Equity Method
Equity Method of Accounting
➢ The equity investment is initially recorded on the investor’s balance sheet at cost. In subsequent periods, the carrying amount of the investment is adjusted to recognize the investor’s proportionate share of the investee’s earnings or losses, and these earnings or losses are reported in income.
• Dividends or other distributions received from the investee
are treated as a return of capital and reduce the carrying
amount of the investment and not reported in the I/S.
• One – line consolidation.
50

Equity Method
Equity Method的会计处理 – 规律表:
Ref.
Items
B/S - Investment
I/S - Equity Earning
1
Purchase Price
Cash ; Inv
N/A
2
% Dividend
Cash ; Inv
N/A
3
% Net Income
Inv
4
% Depreciation =(FV-BV)/N
Inv
5
% RPT Unrealized Profit
Inv
51

Example
Equity Method of Accounting
➢ December 31, 20X5, Company A invests $1,000 in return for 30% of the common shares of Company B.
• During 20X6, Company B earns $400 and pays dividends of $100.
➢ Calculate the effects of the investment on Company A’s balance sheet, income statement and cash flow for 20X6.
52

Example
Equity Method of Accounting (Answer)
➢ Recognize $120 ($400×30%) in the I/S from its proportionate share of the net income of Company B.
➢ Increase its investment account on the balance sheet by $120 to $1,120 to reflect its proportionate share of the net assets of B.
➢ Receive $30 ($100×30%) in cash dividends from Company B and reduce its investment in Company B by that amount to reflect the decline in the net assets of Company B due to the dividend payment.
• At the end of 20X6, the book value of the investment on Company
A’s B/S = $1,000 + $120 - $30 = $1,090
53

Equity Method
Investment Costs That Exceed the Book Value of the Investee
➢ Acquisition cost is initially recognized as investment in associate, and comprises of two parts:
• Fair value of the net assets acquired.
• Goodwill (Not amortized but need to test for impairment)
➢ The difference between fair value and book value of the net assets acquired will adjust the I/S of investor’s equity income.
• Not simply equals to the net income earned by investee
multiplied by percentage of interests owned.
54

Equity Method
Investment Costs That Exceed the Book Value of the Investee
Goodwill is renewed for impairment on a regular basis.
This part is amortized to the investee’s profit or loss over economic lives.
55

Example
Investment Costs That Exceed the Book Value of the Investee
➢ At the beginning of the year, A Company purchased 30% of B Company for $80,000. Net asset of company B in book value is $200,000. On the acquisition date, the book value of B’s assets and liabilities were the same except for B’s equipment, which had a book value of $25,000 and a fair value of $75,000 on the acquisition date. B’s equipment is depreciated over ten years using the straight – line method. At the end of the year, B reported net income of $100,000 and paid dividends of $60,000.
56

Example
Question A: Calculate the goodwill
➢ Goodwill = Purchase price – Fair value of the net assets
= Purchase price – (Book value of the net assets +
Appreciation of the equipment)
=$80,000 – [$200,000 x 30% + ($75,000 FV - $25,000 BV)
x 30%] =$5,000
57

Example
Question B: Calculate Company A’s equity income at the end of the year from its investment in Company B.
➢ Equity income = Proportionate share of B’s net income – Additional depreciation from excess of purchase price allocated to B’s equipment.
➢ Equity income = ($100,000 x 30%) – (Excess / 10) = $28,500 • Excess = ($75,000 - $25,000) x 30% = $15,000
58

Example
Question C: Calculate the investment in Company B that appears on Company A’s year-end balance sheet.
➢ Investment balance at end of year = Investment balance at beginning of year + Equity income – Dividends pay out
➢ Investment = $80,000 + $28,500 (Equity income) – ($60,000 x 30%) = $90,500
59

Fair Value Option
➢ Both IFRS and US GAAP give the investor the option to account for their equity method investment at fair value.
• Both standards require that the election to use the fair
value option occur at the time of initial recognition and is
irrevocable.
• The investment is reported at fair value with unrealized
gains and losses arising from changes in fair value as well as any interest and dividends received included in the investor’s profit or loss.
60

Fair Value Option
➢ Both IFRS and US GAAP give the investor the option to account for their equity method investment at fair value. (Cont.)
•
Under the fair value method, the investment account on the investor’s balance sheet does not reflect the investor’s proportionate share of the investee’s profit / loss or dividends.
In addition, the excess of cost over the fair value of the investee’s identifiable net assets is not amortized, nor is goodwill created.
•
61

Summary
➢ Importance: ☆☆☆ ➢ Content:
• The classification, measurement of investment in associates under both IFRS and US GAAP.
• Equity Method (B/S，I/S的相关处理) ➢ Exam tips:
• 定性掌握关联企业投资的判定标准;
• 定量掌握关联企业投资的计量方法——Equity Method;
• 简单了解Fair Value Option。
62

Intercorporate Investments
Adjustments of Equity Investment
Tasks:
➢ Describe and Distinguish the impairment for investment in associates under both IFRS and US GAAP.
➢ Describe the transactions with associates under equity method for investment in associates.
63

Impairment of Equity Investment
IFRS
➢ The entire carrying amount of the investment is tested for impairment by comparing its recoverable amount with its carrying amount.
• Recoverable amount of an asset is the higher of its value
less costs to sell and its value in use.
➢ The impairment loss is recognized on the income statement, and the carrying amount of the investment on the balance sheet is either reduced directly or through the use of an allowance account.
64

Impairment of Equity Investment
US GAAP
➢ If the fair value of the investment declines below its carrying value and the decline is determined to be permanent, an impairment loss to be recognized on the income statement and the carrying value of the investment on the balance sheet is reduced to its fair value.
➢ Both US GAAP and IFRS prohibit the reversal of impairment losses even if the fair value later increases.
65

Transactions with Associates
Upstream ( associate to investor )
➢ The profit on the intercompany transaction is recorded on the associate’s income statement.
• The investor’s share of the unrealized profit is thus
included in equity income on the investor’s income
statement.
➢ Investor must reduce its equity income of investee by
investor’s proportionate share of the unconfirmed profit.
• Unconfirmed profit means goods have not been used or
sold by the investor.
66

Example of Upstream Transaction
Upstream ( associate to investor )
➢ Suppose that Investor owns 30% of Investee. During the year, Investee sold goods to Investor and recognized $15,000 of profit from the sale. At year end, half of the goods purchased from Investee remained in Investor’s inventory.
➢ Investor must reduce its equity income by $2,250 • ($15,000 x 50%) x 30% = $2,250
➢ Once the inventory is sold by Investor, $2,250 of equity income will be recognized.
67

Transactions with Associates
Downstream ( investor to associate )
➢ The investor has recognized all of the profit in its income statement.
➢ The investor must eliminate the proportionate share of the profit that is unconfirmed.
68

Example of Downstream Transaction
Downstream ( investor to associate )
➢ Suppose that Investor owns 30% of Investee. During the year, Investor sold $40,000 of goods to Investee for $50,000. Investee sold 90% of the goods by year – end.
➢ Investor’s profit is $10,000 ($50,000 sales - $40,000 COGS)
➢ 10% of the profit remains in Investee’s inventory.
➢ Investor must reduce its equity income by the proportionate share of
unconfirmed profit:
• $10,000 profit x 10% unconfirmed amount x 30% = $300
• Once Investee sells the remaining inventory, Investor can
recognized $300 of profit.
69

Analytical Issues For Equity Method
➢ Analysts should question whether the equity method is appropriate
• Significant influence or not
➢ There can be significant assets and liabilities of the investee that
are not reflected on the investor’s balance sheet, which will
significantly affect debt ratios.
➢ Net margin ratios could be overstated because income for the
associate is included in investor net income but is not specifically
included in sales.
➢ Finally, the analyst must consider the quality of the equity
method earnings.
70

Summary
➢ Importance: ☆☆☆ ➢ Content:
• Impairment (US GAAP & IFRS)
• Transactions with Associates (upstream & downstream) ➢ Exam tips:
• 掌握Equity Method减值的计量方法(IFRS vs. US GAAP);
• 定量掌握关联企业上下游交易对报表的调整;
• 重点理解使用Equity Method对于B/S & I/S以及ratio的影响。
71

Intercorporate Investments
Business Combinations
Tasks:
➢ Describe the classification, measurement, and disclosure under International Financial Reporting Standards (IFRS) for Business combinations.
➢ Distinguish between IFRS and US GAAP in the classification, measurement, and disclosure of Business combinations .
72

Business Combinations – 概述
=100%: 不产生MI
并购>50%或实 际控制
Acquisition Method
<100%: 产生MI
73

Business Combinations – 概述
Acquisition Method: (PP = FV子 = BV子时)
Balance Sheet
A母 +A子 –PP=A合 L母 + L子 = L合
E 母 + MI = E合 MI = (1 - %) * FV子
Income Statement
Sales母 + Sales子 = Sales合
Exp母 EBIT母
NI 母

• Exp子 + EBIT子
  = Exp合
  = EBIT合
  [注:MI= (1 - %)* NI子]

  • MI

• % NI 子 = NI 合
  74

  Business Combinations – 概述 问题一: 合并后的报表平吗?
  A母 +A子 –PP
  L母+L子 E 母 + MI
  75

  Business Combinations – 概述
  问题二: 题目给出以下四列，合并时选取哪两列数字? FV母 BV母 FV子 BV子
  76

  Business Combinations – 概述 问题三:
  购买股份时，用的不是现金，而是增发股票方式，怎么处理?
  Cash
  Capital – par Value
  Capital – Additional Paid-in Capital
  77

  Business Combinations – 概述 问题四:
  如果 FV子> BV子, 怎么处理?
  78

  Business Combinations – 概述 问题五:
  如果 PP > FV子, Goodwill怎么处理?
  79

  Business Combinations – 概述 Goodwill : 一般计算法则
  80

  Business Combinations – 概述 Goodwill:合并报表中的商誉计算
  1)GAAP Difference
  US GAAP: Full Goodwill
  Partial Goodwill Full Goodwill
  IFRS:
  81

  Business Combinations – 概述 Goodwill:

2. 计算方法
   被收购企业
   PP
   FV
   BV
   收购80%股权
   800
   400
   240
   收购100%股权
   1000
   500
   300
   Partial Goodwill = 800 – 400 = 400 Full Goodwill = 1000 – 500 = 500
   82

   Business Combinations – 概述 Goodwill:

3. 计算方法
   P. GW MIP = (1-%) * FV NIA F. GW MIF = (1-%) * FV 子
   83

   Business Combinations – 概述 Goodwill:

4. 减值
   •IFRS: Carrying Value Vs Recoverable Amount(Unit)
   •US: Step1 – Testing: Carrying Value Vs Fair Value(Unit)
   Step2 – Calculation: Carrying Value Vs Fair Value(GW)
   84

   Business Combinations – 概述 Goodwill:

5. 减值后的转回 2种准则下均不能转回
   5)商誉减值为0后的后续处理
   •IFRS: GW减为0后，继续减记其他资产 •US: GW减为0后，不再减记其他资产
   85

   Business Combinations
   Definition of Business Combinations
   ➢ Business combinations (controlling interest investments) involve the combination of two or more entities into a larger economic entity.
   • Under IFRS, there is no distinction among business
   combinations based on the resulting structure of the larger
   economic entity.
   • Under US GAAP, business combinations are categorized as:
   ✓ Merger (吸收合并)
   ✓ Acquisition (收购)
   ✓ Consolidation (新设合并)
   86

   Business Combinations in US GAAP
   Merger (吸收合并)
   ➢ The distinctive feature of a merger is that only one of the
   entities remains in existence. One hundred percent of the target is absorbed into the acquiring company. (Acquire 100% of the target)
   • Company A + Company B = Company A
   87

   Business Combinations in US GAAP
   Acquisition (收购)
   ➢ Each entity continues operations but is connected through a
   parent–subsidiary relationship. Each entity is an individual that maintains separate financial records, but the parent (the acquirer) provides consolidated financial statements in each reporting period.
   • Company A + Company B = (Company A + Company B)
   88

   Business Combinations in US GAAP
   Consolidation (新设合并)
   ➢ The distinctive feature of a consolidation is that a new legal
   entity is formed and none of the predecessor entities remain in existence. A new entity is created to take over the net assets of Company A and Company B. (Acquire 100% of the target)
   • Company A + Company B = Company C
   89

   Accounting Treatment for Business Combination
   Pooling-of-Interests Method (US GAAP, Prior to June 2001)
   ➢ Combining companies that met twelve strict criteria.
   Companies not meeting these criteria used the purchase
   method.
   ➢ The target’s assets and liabilities are stated at their book value
   in the consolidated financials statements.
   ➢ Operating results for prior periods are restated as though the
   two firms were always combined.
   ➢ Similar rules applied under IFRS, which used the term uniting
   of interests method. (IFRS, Prior to March 2004)
   ➢ Currently, neither IFRS nor US GAAP allows use of the pooling
   or uniting of interests method. 90

   Accounting Treatment for Business Combination
   Purchase Method (US GAAP & IFRS)
   ➢ The assets and liabilities acquired by the Parent should be
   stated at fair value in the consolidated financials statements. ➢ An increase in the value of depreciable assets resulted in
   additional depreciation expense. As a result, for the same level of revenue, the purchase method resulted in lower reported income than the pooling of interests method.
   ➢ Now, the acquisition method which replaces the purchase method is required in both US GAAP and IFRS.
   91

   Accounting Treatment for Business Combination
   Acquisition Method (US GAAP & IFRS)
   ➢ All of the assets, liabilities, revenues, and expenses of the
   subsidiary are combined with parent.
   ➢ Intercompany transactions are excluded.
   ➢ The acquisition method addresses three major accounting
   issues that often arise in business combinations.
   • The recognition and measurement of the assets and liabilities
   of the combined entity.
   • The initial recognition and subsequent accounting for goodwill.
   • The recognition and measurement of any non-controlling
   interest.
   92

   Example of Acquisition Method – B/S
   ➢ Suppose that on January 1st ,2016, Company A acquires 80% of the common stock of Company B by paying 8 , 000 i n c a s h t o t h e s h a r e h o l d e r s o f C o m p a n y B . T h e p r e − a c q u i s i t i o n b a l a n c e s h e e t o f C o m p a n y A a n d C o m p a n y B a r e s h o w n b e l o w : B / S I t e m s C u r r e n t a s s e t s O t h e r a s s e t s T o t a l C u r r e n t l i a b i l i t i e s C o m m o n s t o c k R e t a i n e d e a r n i n g s T

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