Complete Solutions Manual for Advanced Financial Accounting in Canada, 1st edition 1ce by Nathalie Johnstone, Kristie Dewald, Cheryl Wilson. ISBN 4019
Full Chapters Solutions are included. End of chapters exercises / problems are included.
Introduction to Advanced Financial Accounting
Accoun...
Chapter 1
Introduction to Advanced Financial Accounting
Review Questions
1-1. Arguments for classification as a passive investment: Delta only owns 15% of the voting
shares of Epsilon. The remaining shares are held by one company, indicating that Delta
may not have influence.
Arguments for classification as an associate: Typically, a shareholding of 20% or more is
indicative of significant influence. However, this factor is not definitive. Other factors
should also be considered to determine whether or not significant influence exists. In this
case, Delta Corporation can elect one member of the board of directors, indicating that
there is some influence over the policies of Epsilon. Delta also possesses a patent that
Epsilon needs in its operations, which it allows Epsilon to use. This patent further indicates
that there is significant influence.
Conclusion: Based on the information provided, the investment in Epsilon should be
classified as an associate and Delta Corporation should use the equity method to account
for its investment.
1-2. IFRS 10 outlines the three criteria that must be present for control to exist. They are the
power criterion, return criterion, and the link between the two. The power criterion refers
to the ability of an investor to direct the relevant activities of the investee. The return
criterion refers to the risks and rewards associated with the earnings of the investee. The
link between the first two criteria is the ability to use its power to affect the earnings of the
investee.
1-3. Factors that should be considered in determining control include:
1. Voting rights along with convertible rights.
2. Right to choose key personnel, such as the board of directors or key management.
3. The right to veto key decision of the investee or right to force the investee to enter into a
specific transaction.
4. Material transactions with the investee.
5. Exchange of management or technology.
1-4. Factors used to determine if an investor has significant influence are presented in IAS 28:
1. Voting rights of 20% to less than 50% is usually considered enough to give the investor
significant influence.
2. Other factors to consider are:
- representation on the board of directors, but not enough to control the board
- ability to share in determining the policies of the investee
, ISM for Johnstone/Dewald/Wilson, Advanced Financial Accounting in Canada, Canadian Edition
- material intercompany transactions
- exchange of management or technical information
1-5. IFRS 10 refers to the parent as an entity that controls another company, which is referred to
as the subsidiary. The parent-subsidiary relationship exists when one company controls
another entity.
1-5. Strategic investments are investments that are closely linked to the strategic goal of the
investor. Traditionally, these types of investments help the investor improve or meet its
organizational goals. There are three classifications for strategic investments: associates,
subsidiaries, and joint arrangements.
1-6. A joint arrangement is defined in IFRS 11 as an agreement between two or more investors
where they share control over an operation. There are two types of joint arrangements:
joint ventures and joint operations.
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