This lecture by Blair Cook discusses accounting for equity investments under International Accounting Standards. 

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Accounting for Equity Investments

This lecture details accounting for wholly owned business combinations and different deal structures. You will learn about the various forms and deal structures for a business combination. Then you will learn how to calculate goodwill arising upon a business combination. You will also learn how to calculate the purchase price allocation for both wholly owned business combinations and reverse takeovers.

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Accounting for Business Combinations

This lecture discusses how to account for a business combination (mergers and acquisitions) when there is a noncontrolling interest. You will learn about how non controlling interest arises, how to calculate the amount of non controlling interest upon acquisition, and how to prepare a consolidated statement of financial position at the sate of acquisition of a majority controlled subsidiary.



Accounting for Mergers and Acquisitions (Noncontrolling Interest)

Accounting impairments are a reduction in the recoverable amount of a fixed asset or goodwill below its carrying amount.This lecture discusses accounting for impairments. You will learn how to calculate charges on long-lived assets and how to calculate impairment reversals on long-lived assets.

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Accounting for Impairments

This lecture works through a post-acquisition consolidation with a parent that uses the equity method of accounting for its investment in the subsidiary. You will learn about how to calculate consolidated results post-acquisition where the investment has been accounted for using the equity method.

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Accounting for M&A Consolidation Using Equity Method

This lecture works through a post-acquisition consolidation with a parent that uses the cost method and the equity method of accounting for its investment in the subsidiary. You will learn about how to calculate consolidated results post-acquisition where the investment has been accounted for using the cost method and the equity method.

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Consolidations with Cost Method And Equity Method

This lecture discusses how to eliminate inter-company transactions and balance and specifically look at inventory transactions. You will learn how to adjust consolidated results to eliminate inter-corporate transactions including charges, inventory, non-depreciable assets and depreciable assets.

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Consolidation Accounting and Inter-corporate Transactions

This lecture discusses how to eliminate inter-company land transactions. You will learn about what happens when a parent company sells land to a subsidiary or vice verse.

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Consolidation Accounting and Inter-corporate Land Sales

In this lecture you will learn about how to eliminate inter-company depreciable asset transactions. It deals with the scenarios where you sell depreciable assets such as equipment, building or even intangibles.

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Consolidation Accounting and Inter-corporate Depreciable Asset Sales

In this lesson you will learn about an approach to prepare the consolidated statement of cash flows. A company may have dozens of subsidiaries and preparing a consolidated cash flow statement can be very complicated. This lecture demystifies how to do this.

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Preparing a Consolidate Cash Flow Statement

This lecture discusses how to transition the investment account between classifications as the parent's ownership changes. You will learn how to account for incremental step purchases.

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Consolidation Accounting: Changes in Equity Ownership

This lecture discusses how to calculate consolidated net income and noncontrolling interest when we acquire indirect control of another company. 

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Accounting: Consolidations with Indirect Control

In this lecture, you will learn about consolidating special purpose entities, also known as variable interest entities.

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Accounting: Consolidating Special Purpose Entities

This lecture discusses accounting for joint arrangements.You will learn about joint operations and joint ventures and how to account for them.

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Accounting for Joint Arrangements

This lecture discusses how income taxes impact the acquisition accounting. You will learn about the recognition of temporary differences in a business combination. You will also learn about the accounting for loss carry forwards in a business combination.

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Accounting: Deferred Income Taxes in Business Combinations

In this lesson we learn how all about reportable segments in the consolidated business. You will also be able to identify when to separately report an operating segment.

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Consolidation Accounting: Segment Reporting

In this article, you will learn about how to account for foreign currency transactions undertaken by the domestic company.

<span style="font-weight: 400;">A foreign exchange transaction takes place when a domestic company (such as a company in the US) enters into a transaction with a buyer or seller in another country (such as UK) to buy or sell products or services and the payments for the transaction are in foreign currency (in this case pounds).</span>

<span style="font-weight: 400;">Let’s say the US company (whose records we are preparing), books an order to supply some goods to the UK company. We have the following details:</span>
<ul>
 	<li style="font-weight: 400;"><span style="font-weight: 400;">The currency for the transaction is GBP. </span></li>
 	<li style="font-weight: 400;"><span style="font-weight: 400;">The functional currency of the US company is USD.</span></li>
</ul>
<b>At the time of order:</b>
<ul>
 	<li style="font-weight: 400;"><span style="font-weight: 400;">The total value of the order is GBP 75000. </span></li>
 	<li style="font-weight: 400;"><span style="font-weight: 400;">The exchange rate is 1 GBP = 1.33 USD.</span></li>
</ul>
<b>At the time of settlement:</b>
<ul>
 	<li style="font-weight: 400;"><span style="font-weight: 400;">The exchange rate is 1 GBP = 1.2 USD</span></li>
</ul>
<b>The transaction will be recorded as follows:</b>

<span style="font-weight: 400;">If the US firm was entering into a transaction with a foreign firm but the transaction was to be settled in US dollars, then the US firm will account for the transaction in the same manner as if it happened with another US firm.  </span>

<span style="font-weight: 400;">However, in this case the transaction is with a foreign company and the transaction is being settled in foreign currency. This exposes the US firm to foreign exchange risk, i.e., the exchange rates may move unfavourably between the date the transaction is entered and the date the payment is settled. </span>

<span style="font-weight: 400;">Since the transaction is in GBP which is the reporting currency for the UK company, the UK company will record this transaction normally. However, the US company needs to translate the transaction into its reporting currency before the transaction is entered into its accounts.</span>

<b> On the date of recognition:</b>

<span style="font-weight: 400;">On the date of sale, the US company will record the transaction in its functional currency (USD). So, in this case, the US company will convert the value of sale in USD and recognize the sale at this value (75,000 * 1.33 = USD 100,000) in its ledger. The foreign exchange rate is the spot rate on that day. </span>
<ul>
 	<li style="font-weight: 400;"><span style="font-weight: 400;">Credit ‘sales’ account by $100,000</span></li>
 	<li style="font-weight: 400;"><span style="font-weight: 400;">Debit ‘accounts receivable’ by $100,000.</span></li>
</ul>
<b style="line-height: 1.7em;">On settlement date:</b>

<span style="font-weight: 400;">Remember that the transaction is happening in GBP, so the US firm will receive the payment in GBP. For reporting the transaction, the company will convert the GBP value into US dollars based on the exchange rate effective on that date. The new exchange rate is 1 GBP = 1.2 USD. The payment of GBP 75,000 will translate to USD 90,000 (75000*1.2).</span>

<span style="font-weight: 400;">Since the company had books a sale of USD 100,000  but the final settlement is for USD 90,000, there is a loss of USD 10,000 for the company. This is the loss due to change in exchange rate. In order to properly close the accounts, the company will record the payment receipt of USD 90,000, and show a loss of USD 10,000 against the total accounts receivable of USD 100,000</span>
<ul>
 	<li style="font-weight: 400;"><span style="font-weight: 400;">Debit cash by $90,000</span></li>
 	<li style="font-weight: 400;"><span style="font-weight: 400;">Debit ‘foreign currency exchange loss’ by $10,000</span></li>
 	<li style="font-weight: 400;"><span style="font-weight: 400;">Credit ‘accounts receivable’ by $100,000</span></li>
</ul>
<b>On Balance Sheet Date</b>

<span style="font-weight: 400;">It is possible that the transaction will be settled after many months and a balance sheet date falls between the transaction date and the settlement date. In this case the balances that are denominated in foreign currency need to be adjusted using the exchange rate on the balance sheet date and the gain/loss in the transaction needs to be recognized in the earnings.</span>

<span style="font-weight: 400;">The following tables illustrates the impact of change in exchange rates on sale/purchase in foreign currency for the domestic company.</span>
<table>
<tbody>
<tr>
<td></td>
<td><b>Sale (Receive Foreign Currency)</b></td>
<td><b>Purchase (Pay in Foreign Currency)</b></td>
</tr>
<tr>
<td><span style="font-weight: 400;">Domestic currency becomes weak </span>
<span style="font-weight: 400;">(e.g., you can buy more of domestic currency with the same amount of foreign currency)</span></td>
<td><span style="font-weight: 400;">Gain</span></td>
<td><span style="font-weight: 400;">Loss</span></td>
</tr>
<tr>
<td><span style="font-weight: 400;">Domestic currency becomes  strong </span>
<span style="font-weight: 400;">(e.g., you can buy less of domestic currency with the same amount of foreign currency)</span></td>
<td><span style="font-weight: 400;">Loss</span></td>
<td><span style="font-weight: 400;">Gain</span></td>
</tr>
</tbody>
</table>
<span style="font-weight: 400;">The gain loss on a foreign exchange transaction should not recognized in the following cases:</span>
<ol>
 	<li style="font-weight: 400;"><span style="font-weight: 400;">Net investment hedges. When the transaction is designed as an economic hedge for net investment in a foreign entity.</span></li>
 	<li style="font-weight: 400;"><span style="font-weight: 400;">Long-term inter-company transactions that are not expected to be settled in the foreseeable future. In such cases, the foreign currency gain/loss should be recorded as a Cumulative Translation Adjustment (CTA) in a set of consolidated financial statements. </span></li>
</ol>

Accounting for Foreign Exchange Transactions

In this lecture, you will learn about accounting for foreign exchange speculative contracts and cash flow hedges.

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In this lecture on consolidation accounting, you will learn how to translate foreign subsidiaries using two methods, namely temporal method, and current rate method.

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Consolidation Accounting: Foreign Currency Translation

Core Accounting Concepts

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Core Accounting Concepts

Lessons

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