September 2013

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Consolidation Methods II, Full Consolidation – CIIA Exam

ACO holds 60% of the share capital of BCO since BCO was created. On 31.12.X the financial statements of the two co’s appear as follows: [table] Assets,ACO,BCO,-,ACO,BCO Fixed Assets,4000,500,Capital,2000,800 Invest. in BCO,480,-,Retained Es,2500,650 Loan to BCO,200,-,Equity,4500,1450 Inventories,1500,800,-,-,- Trade Debtors,1820,700,Loans,2000,300 -,-,-,Trade Creditors,1500,250 -,8000,2000,-,8000,2000 – Statement of comp. income (SCI) Expenses,ACO,BCO,Income,ACO,BCO Op Exp.,8500,3000,Revenues,10000,3800 Other Exp.,2000,850,Other Income,1000,200 Net income,500,150,-,-,- -,11000,4000,-,11000,4000 [/table] Task: fill in the ACO consolidated financial statements using the full consolidation…


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Consolidation Methods – CIIA Final

Overview of the consolidation methods. With the first two methods, full and proportionate consolidation, assets and liabilities (A+Ls) are included in the consolidated group balance sheet (either 100%=full or x%=proportion owned). With the equity method you only add the x% owned equity of subsidiary, no A+L are added to group balance sheet. The one thing common to all three: shareholders equity is always including the x% equity of subsidiary. In…


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Absorption (a) and Quasi-Merger (b) Acquisition (c and d) Calculation IV – CIIA Final

Companies ACO and BCO are set to merge. ACO will buy BCO by exchanging 10 own shares for 1 BCO share. Balance sheets: [table] Description,ACO,BCO Current Assets,120,60 Other Assets,380,140 TOTAL ASSETS,500,200 Liabilities,300,110 Common Stock,160,80 Retained Earnings,40,10 – Notes – # shares,8000,400 par value,20,200 [/table] Exchange ratio: 10 ACO shares for 1 BCO share [table]a) Show the balance sheet of ACO after absorption Current Assets,180 Other Assets,520 TOTAL ASSETS,700 Liabilities,410 TOTAL…


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Goodwill Calculation III – Equity Accounting – CIIA Final

Situation: Co Jaguar Ltd purchases 40% of voting rights and capital of Co Coati Ltd for 700 as of Jan 1st 2012. The Equity of Co Coati Ltd at that time 1650. In 2012 Co Coati Ltd made a profit of 130 (of which 40 are paid out as dividend the following year), in 2013 a loss of 50 results. No dividends were paid in 2012. a. calculate the goodwill…


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Mergers: Goodwill Calculation II – Purchase Method – CIIA Final

The following example deals with a MERGER example. The two main methods for accounting for mergers are the pooling of interests method (which is no longer allowed under IFRS) and the purchase method. This example deals with the purchase method! Co A Ltd and Co B Ltd were merged on January 1st, 2013. Co A Ltd acquired Co B Ltd with an exchange of common voting shares. The no. of Co…


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Goodwill Calculation I – CIIA Final

Question: Calculate the Goodwill if the acquisition price was 36.3 [table] Description,Book Value,Fair Value,Sum Current Assets,13.2,15.1,- Property Plant Equipement,22.6,29.3,- Other Assets,2.18,4.5,- Current Liabilities,7.1,6.5,- Long-Term Liabilities,10.2,10.9,- [/table] Step 1: Sum the assets and liabilities (only Fair Value necessary) [table] Description,Book Value,Fair Value,Sum Current Assets,13.2,15.1,- Property Plant Equipement,22.6,29.3,- Other Assets,2.18,4.5,- TOTAL ASSETS,-,48.9,- Current Liabilities,7.1,6.5,- Long-Term Liabilities,10.2,10.9,- TOTAL LIABILITIES,-,17.4,- [/table] Step 2: Calculate difference assets and liabilities [table] Description,Amount TOTAL ASSETS,48.9 TOTAL LIABILITIES,17.4…


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Portfolio Management – Concave (Constant-Mix) & Convex Strategies (Contant Proportion Portfolio Insurance)

When looking for examples of which portfolio strategies have a convex and which a concave payoff I came across the two charts below in a stanford.edu paper that was written in the Financial Analyst Journal 1995! Figure 8 shows nicely that the Constant-Mix strategy produces a concave payoff diagramm whereas figure 10 shows how the Constant-Proportion Portfolio Insurance (CPPI) strategy produces a convex payoff diagramm. Background: One of the CIIA Exam…