...Chapter 1: The Equity Method of Accounting for Investments 1. There are three ways that a company may account for its investments in other companies. The method of accounting is determined by the degree of influence or control that the investor has over the investee: Criterion Ownership Level Accounting Method Inability to significantly influence Less than 20% Fair value or cost Ability to significantly influence 20% - 50% Equity method or fair value Control (through voting power) More than 50% Consolidated financial statements Control (through variable interests) Primary beneficiary status (no ownership required) Consolidated financial statements 2. The Fair-Value method is used for all equity investments in which the investor does not have the ability to significantly influence the investee. These investments are recorded at cost and periodically adjusted to fair value (i.e., market values). The basic principles are: 1) initial investments in equities are recorded at cost and subsequently adjusted to fair value if fair value is readily determinable; otherwise, the investment remains at cost. 2) equity securities held for sale in the short term are classified as trading securities and reported at fair value, with unrealized gains and losses included in earnings. 3) equity securities not classified as trading securities are classified as available for sale securities and reported at fair value, with unrealized gains and losses excluded from earnings and reported...
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...On Accounting Flows and Systematic Risk Neil Garrod University of Glasgow Dusan Mramor University of Ljubljana Address for correspondence: Neil Garrod, Department of Accounting and Finance, University of Glasgow, 65-71, Southpark Avenue, Glasgow G12 8LE, Scotland, U.K. Tel: 00-44-141-330-5426 e-mail: n.garrod@accfin.gla.ac.uk On Accounting Flows and Systematic Risk Abstract The body of work that relates accounting numbers to market measures of systematic equity risk was largely undertaken in the 1970s and early 1980s. More recent proposals on changes in accounting disclosure of risk mean that a rigorous theoretical model of the relationship between accounting measures and market measures of risk is timely. In this paper such a model is developed. In addition, the assumptions required to develop the model are explicitly identified. By so doing it becomes possible to identify the potential cross-sectional differences which drive the empirical relationship between accounting and market based measures of risk. The model developed highlights a clear relationship between accounting and market measures of risk which can be exploited in situations where accounting data alone is available. It also provides a framework within which the environmental factors leading to cross-sectional differences between companies can be further explored. On Accounting Flows and Systematic...
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...Accounting 557 Entire Course (STR) To purchase this tutorial visit here: http://mindsblow.us/question_des/Accounting557EntireCourseSTR/2804 contact us at: help@mindblows.us Accounting 557 Entire Course (STR) ACC 557 Week 3 Assignment 1 - Review of Accounting Ethics ACC 557 Week 6 Assignment 1 - You Are an Entrepreneur! ACC 557 Week 10 Assignment 2 - You Are an Investment Analyst Including All Weeks Quizzes and Homework Accounting 557 Entire Course (STR) To purchase this tutorial visit here: http://mindsblow.us/question_des/Accounting557EntireCourseSTR/2804 contact us at: help@mindblows.us Accounting 557 Entire Course (STR) ACC 557 Week 3 Assignment 1 - Review of Accounting Ethics ACC 557 Week 6 Assignment 1 - You Are an Entrepreneur! ACC 557 Week 10 Assignment 2 - You Are an Investment Analyst Including All Weeks Quizzes and Homework Accounting 557 Entire Course (STR) To purchase this tutorial visit here: http://mindsblow.us/question_des/Accounting557EntireCourseSTR/2804 contact us at: help@mindblows.us Accounting 557 Entire Course (STR) ACC 557 Week 3 Assignment 1 - Review of Accounting Ethics ACC 557 Week 6 Assignment 1 - You Are an Entrepreneur! ACC 557 Week 10 Assignment 2 - You Are an Investment Analyst Including All Weeks Quizzes and Homework Accounting 557 Entire Course (STR) To purchase this tutorial visit here: http://mindsblow.us/question_des/Accounting557EntireCourseSTR/2804 contact us at: help@mindblows.us Accounting...
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...Accounting Rate of Return | ARR | AAR | ROI Definition Accounting Rate of Return, shortly referred to as ARR, is the percentage of average accounting profit earned from an investment in comparison with the average accounting value of investment over the period. Accounting Rate of Return is also known as the Average Accounting Return (AAR) and Return on Investment (ROI). Topic Contents: 1. Definition 2. Formula 3. Explanation 4. Example 5. Advantages 6. Limitations Formula Accounting Rate of Return | = | Average Profit | % | | | Average Book Value | | Where: Average Profit | = | Total accounting profit over the investment period | | | Years of Investment | Average Book Value | = | Initial investment + Scrap Value + Working Capital | | | 2 | or Average Book Value | = | N.B.V. (year 0) + N.B.V. (year 1) + N.B.V. (year 2) + ... | | | Years of Investment + 1 | Explanation ARR is a measure of accounting profitability of investments. An ARR of 10% for example means that the investment would generate an average of 10% annual accounting profit over the investment period based on the average investment. ARR may be compared with the target return on investment. Investments may be accepted if the ARR exceeds the target return. However, it is preferable to evaluate investments based on theoretically superior appraisal methods such as NPV and IRR due to the limitations of ARR discussed below. The calculation of ARR requires...
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...Define the cost and equity methods or accounting for an investment. Equity method of accounting of investment is the accounting of investment in which value of each stock/share is counted based on the book value of the stock as reported by the investee corporation. Cost method of accounting of investment is the accounting method in which the purchase price of the stock is taken as the value of the investment. Both are used to report financial assets, liabilities and give and are options available to account for investment holdings. Under the cost method, equity securities with readily determinable fair values must be adjusted at year-end under FASB statement 115. The investor will then recognize income from the investment when the issuer as a dividend distributes income. The cost method is utilized when insignificant influence of the investor exists. The equity method is which the value of each stock or share is counted based on the book value of the sock and is reported by the investee corporation. Under what circumstances would you use the cost or equity method of accounting for an investment? The equity method of accounting treatment of investment is used when the investor in the corporation is able to exercise significant control over the operation and policies of the corporation i.e., when the investor owns at least 20% of voting stock on the corporation, then equity method of accounting treatment is used. Furthermore, The equity method is a method used...
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...Introduction 4 Research Findings 5 History of the FASB 5 Requirements Imposed by the FASB on Public Corporations 6 Impact of the FASB on the Investment Community and their Satisfaction with the FASB Standards 6 Recommendations 7 Conclusion 8 References 9 Executive Summary The purpose of this research is to provide a report to Acme Company management on the accounting and reporting standards of the Financial Accounting Standards Board (FASB) and the impact that the FASB will have on Acme Company. This research covers the history and goals of the FASB, the requirements imposed by the FASB on public corporations, and the impact that the FASB has on the investment community and their satisfaction with the FASB standards. The FASB was formed in the early 1970s, when it became evident that there was a real need for a clear, concise, accurate, and uniform financial reporting system. The FASB standards are known as GAAP, or Generally Accepted Accounting Principles. Adherence to these principles by publicly traded companies is required by and enforced by the Securities and Exchange Commission (SEC). GAAP is based on consistency, reliability, relevance, and comparability which help to ensure that the reports provided to all investors and creditors contain credible and accurate information. The investment community relies heavily upon the SEC and the FASB to continually monitor financial reporting systems. As times change, reporting methods need to...
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...its accounting records and to a) safeguard its assets b) analyze financial statements c) protect investments by the public d) create a system of audit review 1 Internal control is used in a business to enhance the accuracy and reliability of its accounting records and to a) safeguard its assets b) analyze financial statements c) protect investments by the public d) create a system of audit review 1 Internal control is used in a business to enhance the accuracy and reliability of its accounting records and to a) safeguard its assets b) analyze financial statements c) protect investments by the public d) create a system of audit review 1 Internal control is used in a business to enhance the accuracy and reliability of its accounting records and to a) safeguard its assets b) analyze financial statements c) protect investments by the public d) create a system of audit review 1 Internal control is used in a business to enhance the accuracy and reliability of its accounting records and to a) safeguard its assets b) analyze financial statements c) protect investments by the public d) create a system of audit review 1 Internal control is used in a business to enhance the accuracy and reliability of its accounting records and to a) safeguard its assets b) analyze financial statements c) protect investments by the public d) create a system of audit review 1 Internal control is used in a business to enhance the accuracy and reliability of its accounting records...
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...MBA7001 Accounting for Decision-Makers Week 6 Lecture – Capital Investment Appraisal Slide 10.2 Chapter 10 Making capital investment decisions LEARNING OUTCOMES CHAPTER 10: Investment Appraisal Methods You should be able to: Explain the nature and importance of investment decision making First hour – 23.11.11 Identify the four main investment appraisal methods found in practice •Payback •ARR Use each method to reach a decision on a particular investment opportunity Discuss the attributes of each of the methods 1 Atrill and McLaney, Accounting and Finance for Non-Specialists, 7th Edition, © Pearson Education Limited 2011 Investment Appraisal Investment appraisal methods used in practice Investment appraisal – the process of appraising the potential investment projects. Assessment of the level of expected returns earned for the level of expenditure made. Estimates of future costs and benefits over the project’s life. 3 • Every business would like to do everything • But it all costs • Capital expenditure on new projects or purchases (fixed assets) needs to be planned • Capital is always rationed Scenario: • Your business wishes to expand its product line • It is considering Products A and B but it can only afford to do one. • How does it decide? What main factors affect the investment decision • How much will it cost ? Investment appraisal methods used in practice • How much will I get back ? • When will I get the income ? • 4 main techniques available ranging from ...
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...Muller, III Pennsylvania State University Edward J. Riedl * Harvard Business School Thorsten Sellhorn Ruhr-Universität Bochum PRELIMINARY – PLEASE DO NOT QUOTE WITHOUT PERMISSION December 2007 ABSTRACT: We examine the determinants of investment property firms’ choice to use the cost or fair value model to account for their primary asset, real estate. Our examination exploits the European Union’s adoption of International Financial Reporting Standards, which require firms to make this choice under IAS 40 – Investment Property. We hypothesize and find evidence that firms are more likely to choose the fair value model when the firm’s pre-IFRS domestic standards permitted or required fair values on the balance sheet, and when the firm exhibits a greater commitment to reporting transparency. We also find limited evidence that firms are more likely to choose the fair value model when ownership is more dispersed, and when the property market in which they operate has higher liquidity. Overall, our results reveal both the occurrence and causes of variation in firms’ reporting choices when differing accounting treatments are permitted. Key Terms: Fair value, accounting choice, IFRS, real estate, investment property, IAS 40 JEL Classification: M41, G15, G38 Acknowledgements: We appreciate useful discussion and data assistance from the following persons and their affiliated institutions: Hans Gronloh and Laurens te Beek of EPRA; Simon Mallinson of IPD;...
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...FINANCIAL PERFORMANCE MEASURES AND THEIR EFFECTS By Evanti Firstadea (105020307121003) Rosyida Mardyana (105020307121011) University of Brawijaya Economics and Business Faculty Accounting Major FINANCIAL PERFORMANCE MEASURES AND THEIR EFFECTS INTRODUCTION The primary objective of for-profit organizations is to maximize shareholder (or owner) value, or firm value for short. Thus, the results-control ideal would be to reward each individual employee for doing what s/he does to increase firm value. However, because direct measurements of the individuals’ contributions to value creation are rarely possible, firms have to look for measurement and control alternatives. A commonly cited management axiom is: what you measure is what you get. This axiom works in practice because performance measures are linked to any of a number of incentives that employees value. Employees respond to these incentives. The measures, then, play valuable motivational, or decision influencing, roles. But what performance measure (or measures) should be used? At managerial levels of organizations, both at the corporate and entity levels, job responsibilities are both broad and varied. In common jargon, managers are said to be multitasking. Reflecting that task variety, the list of measures used in practice to motivate and evaluate managers’ performances is long. However, these measures can be classified into three broad categories. Two of these categories include summary, single-number,...
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...Financial Analysis & Management Assignments 1. Discuss the extent to which the legal and professional regulatory framework of accounting ensures that corporate reports provide reliable, relevant, objective, and comparable information to users. 2. Critically evaluate the importance of discounted cash flow techniques in investment decisions. Illustrate your answer with your examples. 3. Discuss the relative importance profitability and liquidity for the survival of a business and explain how the working capital can be managed to minimise the risk of liquidity problems. Shahrzad Parhizgar Student Number: B0229JTJT1112 February 2013 Lecturer:PalanAmbikai Word Count: 2980 Financial Analysis & Management Assignments February 1, 2013 Table of Content LEGAL & PROFESSIONAL REGULATORY FRAMEWORKS ENSURING RELIABLE, RELEVANT, OBJECTIVE, AND COMPARABLE DATA ........................................................................................................................................ 3 INTRODUCTION ....................................................................................................................................................... 3 FINANCIAL INFORMATION USERS ................................................................................................................................ 3 LEGAL AND PROFESSIONAL REGULATORY FRAMEWORKS ................................................................................................. 4 FINANCIAL REPORTS...
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...Financial Accounting Theory III Prof. Alfred Liu Chapter 1: Reporting Equity Investments in Other Companies Example 1: The Cost/Equity Method and Increase of Investment Company A made an investment in one of its local competitors, Company B. For the following events, use the appropriate accounting method and record journal entries for Company A. 1/2/2012 – A purchased 10% of B’s shares for $20,000. 12/31/2012 - B reported net income of $100,000 and declared and paid dividends $10,000 to its shareholders. 1/2/2013 - A purchases an additional 20% of B’s common shares for $45,000. 12/31/2013 - B reports net income of $120,000 for 2013 and declared and paid $11,000 dividends to all shareholders. Analysis: The objective of retroactive adjustment – as if the equity method had been used from the first day of investment. Two accounts need to be adjusted: a) Investment account b) Retained earnings (historical equity income) or AOCI. Solution: In 2012, the cost method was appropriate because we didn’t know the market value of the investment. Record the investment on 1/2/2012 for A: Dr. Investment in B 20,000 Cr. Cash 20,000 Net income reported by B in 2012: No journal entry under the cost method. Record the dividends paid by B to A on 12/31/2012: Dr. Cash 1,000 Cr. Dividend income 1,000 Record the increase in investment on 1/2/2013: Dr. Investment in Ivanhoe Mines 45,000 Cr. Cash 45,000 Retroactive adjustments to investment and retained earnings on 1/2/2013: Dr. Investment in Ivanhoe...
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...BUS 630 Managerial Accounting Entire Course Week 1 to 6 Purchase here http://homeworkonestop.com/BUS%20630/bus-630-managerial-accounting-entire-course-week-1-to-6 Product Description BUS 630, Managerial Accounting WEEK 1 Written Assignment, Case 2B (Mendel Paper Company) Discussion 1, Ethics in Cost Control Discussion 2, Fixed and Variable Costs WEEK 2 Written Assignment Case 3A (Auerbach Enterprises) Discussion 1, Product Costs Discussion 2, Job Order Costing vs. Process Costing WEEK 3 Written Assignment Case 5A (Glaser Health Products) Discussion 1, Allocating Joint Costs Discussion 2, Variable/Absorption Costing WEEK 4 Written Assignment Case 6B (Chester & Wayne) Discussion 1, Budgeting Comments Discussion 2, Standard Cost System Journal Budgets and Employee Morale WEEK 5 Discussion 1, Capital Investment Evaluation Discussion 2, Ranking Investment Alternatives Written Assignment Case 9A (Middlehurst House) WEEK 6 Final Paper, Analyze the Role of Managerial Accounting Discussion 1, Evaluating Performance Discussion 2, Non value- Added Costs in a Doctor's Office BUS 630 Managerial Accounting Entire Course Week 1 to 6 Purchase here http://homeworkonestop.com/BUS%20630/bus-630-managerial-accounting-entire-course-week-1-to-6 Product Description BUS 630, Managerial Accounting WEEK 1 Written Assignment, Case 2B (Mendel Paper Company) Discussion 1, Ethics in Cost Control Discussion 2, Fixed and Variable Costs WEEK 2 Written...
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...Advanced Financial Accounting Unit 3 Solutions Solution to question 1 1. Prepare the equity accounting entries for 20x5 EA1: Recognize share of post-acquisition R/E of A Dr Investment in A 21,000 Cr RE RE of A as at 1 Jan 20x5 RE of A as at date of acquisition Change in RE 30% Share of A's change in RE 21,000 100,000 30,000 70,000 21,000 EA2: Recognize share of impairment loss on intangible asset (note a) Dr RE 4,800 Cr Investment in A 4,800 (30% Asso x 50% impair x (1-20% tax) x 40K) EA3: Adjustment of after-tax unrealized profit on sale of inventory from 20x4 Dr RE (30% asso x (1-20%) x 5k) 1,200 Cr Investment in A 1,200 EA4: Reclassify dividend income as a reduction of investment Dr Dividend income (30%x 20k) 6,000 Cr Investment in A 6,000 EA5: unrealized profit on inventory now recognized in 20x5 Dr Investment in A (30% x 80% x 5k) 1,200 Cr share of profit of A 1,200 EA6: Recognize share of current profit after tax of A Dr Investment in A 48,000 Cr Share of profit of A (30%x160k) 48,000 1 Advanced Financial Accounting Unit 3 Solutions 2. Analytical check of Investment in A $ Investor’s share of book value of A $340,000 x 30% NCI’s share of FV adjustment on intangible assets (after-tax) ($40,000 x 50% x 80%) x 30% Investor’s share of Implicit goodwill (Note) NCI balance as at 31 December 20X5 Note: Implicit goodwill in investment in A: $ Investment in A BV of net assets of A at acquisition Unrecognized intangible (after-tax) FV of net assets of A at...
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...in the past due to financial crises are constantly being reconsidered and old certainties questioned. Accounting has been evolving with the development of advancements and setbacks of society. The SEC has to constantly reevaluate their accounting policies due to past events and changes from various economic and financial crises. The complexities and debates that arise from the causes of a financial crisis result in revisions to accounting regulations and standards that seem to be quickly implemented in order to prevent future disasters. THE SECURITIES ACTS OF 1933 AND 1934 The Securities Act was Congress' opening shot in the war on securities fraud with Congress primarily targeting the issuers of securities. Companies which issue securities (issuers) seek to raise money to fund new projects or investments or to expand; thus, companies have an incentive to present the company and its plans in the rosiest light possible. The Securities Act serves the dual purpose of ensuring that issuers selling securities to the public disclose material information to investors, and that any securities transactions are not based on fraudulent information or practices. In this context, "material" means information that would affect a reasonable investor's evaluation of the company's stock. The goal is to provide investors with accurate information so that they can make informed investment decisions. The Securities Act effectuates disclosure through a mandatory...
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