[jeff]

Free Study Planner, Notes, Audio, Flashcards: https://www.another71.com/cpa-exam-study-plan/

Free CPA Exam Survival Guide: https://www.another71.com/cpa-exam-survival-guide/

Jeff Elliott, CPA (KS) | Another71 | NINJA CPA | NINJA CMA | NINJA CPE

[asg13]

[nicole2035]

“FVO maybe elected when the investor doesn't have control. FV measurement is used when the investor has not elected the FVO and doesn't have significant influence”

I'm really confused by this text in my book. FV option ….is fair value measurement, right?

1. FVO maybe elected when the investor doesn't have control. – control is 50-100% so they have to consolidate

2. FV measurement is used when the investor has not elected the FVO and doesn't have significant influence – if they don't have significant control they have to use fair value measurement anyway because equity nor consolidation is appropriate. I don't get why they're telling it to me in this way if i'm not missing something

[Anonymous]

Hi Nicole

When they elect FV option you mainly need to remember all gains and losses( both realised and unrealised) goes to your Income statement.

When FV has not been elected this is where your unrealised gains go to OCI and realised goes to IS.

This is the important feature you need to remember.

[nicole2035]

@brainfarts thank you!! i knew i was missing a something.

[nosleep]

I came across the following question:

Dex Co. has entered into a joint venture with an affiliate to secure access to additional inventory. Under the joint venture agreement, Dex will purchase the output of the venture at prices negotiated on an arms'-length basis. Which of the following is(are) required to be disclosed about the related party transaction?

I. The amount due to the affiliate at the balance sheet date.

II. The dollar amount of the purchases during the year.

The answer is both.

I get why a joint venture with an affiliate is a third party transaction but what I don't get is the whole arms length thing. I thought that related party transaction cannot be “arms length”. Is the answer both because only the “prices negotiated on an arms'-length basis”. Maybe I'm not fully understanding exactly what arms length means. Any help on the matter would be much appreciated. Thanks!

AUD - 74, 90
FAR - TBA

[nicole2035]

@nosleep this question is in my opinion, a substance over form question, but it's also tricky.

1. The arm's length transactions really says nothing, it's in there to trip up the person reading the question. For example: If Wendy's and Mcdonalds go into a joint venture together though affiliates, lets say part of that deal Mcdonalds has to buy chairs from Home Depot who it has no affiliation with. So, now we know Mcdonalds bought chairs part of the deal, but the information within itself is irrelevant and not useful at all, we at least need to quantify things.

2. companies can say one thing, but are in reality doing another. a joint venture is supposed to be something that is unrelated and naturally at arm's length, but according to FASB since it is a joint venture between affiliates, it needs to be disclosed

“The FASB has been asked to provide guidance on disclosures of transactions between

related parties.1 Examples of related party transactions include transactions between (a) a

parent company and its subsidiaries; (b) subsidiaries of a common parent; (c) an enterprise and

trusts for the benefit of employees, such as pension and profit-sharing trusts that are managed by

or under the trusteeship of the enterprise's management; (d) an enterprise and its principal

owners, management, or members of their immediate families; and (e) affiliates. Transactions

between related parties commonly occur in the normal course of business.”

[Anonymous]

This might help you better understand what Arms length means:-

The arm's length principle is the condition or the fact that the parties to a transaction are independent and on an equal footing. Such a transaction is known as an “arm's-length transaction”. It is used specifically in contract law to arrange an equitable agreement that will stand up to legal scrutiny, even though the parties may have shared interests (e.g., employer-employee) or are too closely related to be seen as completely independent (e.g., the parties have familial ties).

Therefore – this is why you need to “disclose” both that balances you have owed at the end of the year as well as how much interaction you had with a related companies.

IE -Investors/shareholders relying on the statements need to know the full disclosure of all related party transactions to ensure it was at arms length.

[pia ach]

Hi All,

I took FAR in April and got 74, will give it in Aug end. Right not i am away from home (vacation) so will be back by June end. So till then will try to put in 2 hours everyday ! Good luck to all , Happy Monday 🙂

Finally done!!! Experience-pending. Ethics- Pending.
Reg 78 / 73/82.
Aud 74/89.
BEC 72 /78.
FAR 74/ 73/ 82.

[nosleep]

@brainfarts this helps. Many thanks!!

AUD - 74, 90
FAR - TBA

[KFrancis]

Hello!

I need help with accounting changes. Can somebody explain the difference between the below:

1.) Retrospective vs Retroactive

2.) Restatement vs Cumulative Adj.

Thanks so much for your help 😀

AUD: 66, 67, 87!!
REG: 56, 63, 84!!
FAR: 72, 78!!
BEC: 71, 75!!

Using Becker + Ninja 10 Point Combo

[nosleep]

@nicole2035 Thank you!

AUD - 74, 90
FAR - TBA

[Anonymous]

KFrancis

In the FAR study Q2 I did a good write up on this if I can find it I will repost it here. For now I wrote the following.

Restatement – restate prior periods in the event that an accounting error occurred. Meaning you F'd up so you need to restate the prior periods.

Retrospective means comparative statements are displayed in your current FS then restate the prior period so that they make sense when someone is “comparing” current year with Prior year. Note the beginning retained earnings for the earliest year presented, net of tax is adjusted as Opening RE.

[Anonymous]

I finally found it 🙂 – Was on Page 50 in the old study group.

Retrospective – I look at it as you have to Adjust your Opening RE from the periods that you are going to show in your Financials – Cumulative Effect adjustments – For Comparability in Your Financial statements.

Retroactive – You need to reinstate your prior period FS because they had an Error – So its like going back and re-doing them to how they should have been done in the first place.

The term “retroactive” is used when correcting and error, while “retrospective” is used for change in acctg principle or change in reporting entity.

Think about it this way…if you have an error it means you f'd up and you have to “do it over correctly” aka restate

Change in entity is something like consolidating or combining for the first time. Remember that you have to go back and show what your comparative financials would have looked like had you consolidated in previously presented years (not just the year you started consolidating) for comparability.

[KFrancis]

Thank you so much @brainfarts…that definitely makes things more clear to me!

AUD: 66, 67, 87!!
REG: 56, 63, 84!!
FAR: 72, 78!!
BEC: 71, 75!!

Using Becker + Ninja 10 Point Combo

[ahugemistake]

@mamabear thank you for the advice, I think I will give me self about 2-3 weeks to review. I am so ready to take this exam just to find out what it's like.

FAR - 78*
AUD - 66, 79
REG - 73, 76
BEC - 79

[Author]

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