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ACC 703 (10)

Chapter 9 notes.doc

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ACC 703
Deidre Taylor

Chapter 9 Special-Purpose Entities  An entity set up by a sponsor to accomplish a very specific and limited business activity.  Assets transferred to them by their sponsors, SPE can often secure lower cost debt financing for the sponsor because credit risk is limited to the SPE asset.  The debt proceeds, SPE can then pay the sponsor for the transferred assets.  IFRS 10 requires SPE to consolidate as long as they meet the definition of control under IFRS 10:  Investor is exposed to or has rights to variable returns with the investee and has the ability to affect those returns through its power over the investee 1) Power over investee 2) Exposure to rights or variable returns from its involvements 3) Ability to use its power to affect the amount of investor returns Joint Arrangements Two types: Joint Operation (JO) & Joint Venture (JV) Joint Operation  Each contributes the use of assets or resources to the new activity but retains title to and control of these assets and resources.  No new entity created  Have joint control of the arrangement and have rights to the asses, and obligations for the liabilities relating to the arrangement.  IFRS 11 allows JO for proportional, so basically you report your share of assets, liabilities, revenue and expense of the JO.  Sales and contribution of assets to JO: recognize gains and losses only to the extent of the other parties interests. Cannot recognize its share of the gains rd or losses on purchase assets until those assets are sold to 3 party.  If signs of impairment than have to recognize loss fully Joint Venture  Parties that have joint control of the arrangement have rights to the net assets of the arrangement 1  No single venture can control the JA regardless of the value of the assets or resources it contributed to the JA  IFRS requires JV to use equity method  IAS 16: share of gains can be recognized on non-monetary assets contributed except whe n1 of the following conditions is present: 1) Significant risks and rewards have not been transferred or gain cannot be measured reliably 2) Contribution lacks c
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