All you accounting wizs! Help!

[sokdo]

Got a question that needs answering with proof or sources from official documents ( GAAP, SEC, etc)

If a company that holds 60% of stocks of a subsidiary ( or just a general company ) and pays for that subsidiary's operating expenses, what would the company file or report under their balance sheet? What would it come out as? Contributed Capital? Investments? I have all these reports on official documents and I just can't find the answer!

Some documents I've found that relate to it:

Accounting and Auditing for Related Parties and Related Party Transactions
Staff Accounting Bulletins Section T 1.B
Statement 123R


General Keywords to look up: Party Related Transactions; Allocation of Expenses in Financial statements of subsidiaries, Disclosure of Transactions with Related Parties.

I ask because I'm interning at a CPA firm and I need to know something in order to do something.
Thanks!

[Mighty M]

Fin 46

http://www.nysscpa.org/cpajournal/20...ntials/p28.htm

Good luck. And I am by no means qualified to answer any questions on the matter. My work is tax related, dont ask why I know this.

[MJC///M3]

not sure at all....

isn't this classified under minority interest????

[Oregano123]

no. this is a consolidation under IFRS because its more than 50%.

[Seminole]

Originally Posted by bmwhype

no. this is a consolidation under IFRS because its more than 50%.

IFRS isn't in effect yet, unless I'm mistaken.

But, I do think it is a consolidation because the company holds a controlling interest. The company will count as a subsidiary. It's been a few years since I've taken FAR3 so I don't remember exactly what to do, but hopefully that will lead you in the right direction.

[ktdw]

Originally Posted by bmwhype

no. this is a consolidation under IFRS because its more than 50%.

IFRS isn't in effect yet, and my understanding is that it is now pushed off indefinetly b/c of the new head of the SEC...

[jun]

are you asking how the parent would report paying the op ex of the sub, or are you asking how the parent would report the sub on the BS?

if it's the latter - i believe it would be the equity method and they would report it as an asset 'investment in sub.' i need to refresh on my FAS141r.

i don't think this is a VIE so i don't believe fin46 would be applicable.

where are you interning?

[sokdo]

I'm asking how the parent company would report it on their balance sheet. Just very specifically what it would be labeled as and under where in the balance sheet it would incur. The only option left is to call SEC, GAAP, accounting board to get these answers lol.
I already figured out how the subsidiary would report it. Also,yes although they would consolidate their statements, they would first report individual statements to grasp a better understanding of what is happening and then consolidate it for the sake of tax returns, etc.

Also I'm not sure if I want to disclose where I intern at in fear of repercussions =P but if you really want to know, shoot me a pm.

hint: It's in the los angeles area.


also I'm not really sure if it's the equity method because I'm not trying to view these as consolidated. So would the operating expenses paid by the parent company on behalf of the subsidiary would be reported as an investment on the parent company's balance sheet or something else such as contributed capital?

[jun]

Truthfully, I doubt calling the SEC, GAAP, or FASB would work. I don't think people waste their time answering these types of questions. Does your firm not have a 'knowledge center' or any other similar resource?

I forgot how this works totally, but would this not just be some sort of intercompany transaction that is reversed upon consolidation? I can't remember if that was for >80% owned subs. I really think FAS141r is your best bet. I guess theorhetically since the investment in sub account is debited with net income of the sub (the parent co's %) that the opex could be a credit to the investment in sub account.

[Seminole]

The SEC and FASB (GAAP is not an agency) won't be any help if you call them.

Dude, you're an intern. You aren't expected to know anything at all. Instead of wasting a bunch of time struggling with a problem just go ask someone in the office who knows. That is the first thing they told us on during my internship. As long as everyone in your office isn't an ass they will be glad to help. Just take good notes so you don't have to go back and ask someone a second time.

[sokdo]

Yes calling the SEC and FASB did not help at all since no one was there to pick up numerous times. The question I'm asking is how it would be recorded on the parent company's balance sheet, not whether it will matter or not because in the overall scheme, yes it will be consolidated and it will balance out, but try to think of them as not being consolidated. I'm examining the subsidiary as a separate entity for now and think that it won't be consolidated. Yes, I am an intern, and I was asked by someone working at the firm to help him interpret the financial regulations of GAAP and Staff Accounting Bulletins that relate to a specific transaction. To be more specific, it is a joint venture found by 2 companies with the parent company owning 60% of the stocks as the primary shareholder and the other company with 40% of the stocks that both pay the operating expenses of the joint venture subsidiary. However, I simplified it by just mentioning what was needed to be found since we figured out the other ones easily. The regulations that relate to this aren't crystal clear and are very open to interpretation. I was just hoping there would be an experienced CPA in here that had experience in reporting these types of transactions that could give insight into specifically how it would be recorded in the parent company's balance sheet. Nothing more, nothing less.

[Oregano123]

lol this thread is hilarious. go read the intermediate 2 accounting txtbook. its basic stuff

[sokdo]

I don't see how it would help reading an intermediate accounting book when there is nothing specifically stating how to report expenses incurred by the subsidiary and paid by the parent company on behalf of its subsidiary. Please, by all means, enlighten me if its "basic stuff" because I have yet to find a definitive answer after searching for hours

[ktdw]

Originally Posted by jun

Truthfully, I doubt calling the SEC, GAAP, or FASB would work. I don't think people waste their time answering these types of questions. Does your firm not have a 'knowledge center' or any other similar resource?

I forgot how this works totally, but would this not just be some sort of intercompany transaction that is reversed upon consolidation? I can't remember if that was for >80% owned subs. I really think FAS141r is your best bet. I guess theorhetically since the investment in sub account is debited with net income of the sub (the parent co's %) that the opex could be a credit to the investment in sub account.

+1 ...ask for help.

I don't think FAS141R applies because 1) it's only effective for business combinations after 12/15/08 (sounds like this has been around for a while), 2) it's a joint venture and is therefore not covered by the statement, and 3) the issue relates to the treatment of operating expenses.

It's great you are looking at the actual statements, etc...but you'd be better off finding a guidebook put together by a big 4 firm. For example, E&Y has an awesome guide on Stock-Based Compensation (FAS 123R). A lot of their stuff is publically available, just search their website.

[sokdo]

Yea I'm better off calling another big CPA firm that has experience in this. As for the SEC, they've told me two different things =/ which contradicted each other, fat lot of help they are. Thanks for all your help who tried to help with the situation.

[jun]

accounting is open to interpretation. just make sure you document your research and your conclusions in your working papers and you should be fine. i wouldn't go as far as calling another CPA firm, though. do you have access to accounting research manager? have you tried calling the national office for your firm?

http://www.rbh.com/pdf/article_mhenry_accounting.pdf will maybe help you get a quick understanding of a joint venture. This may bring in FIN 46R if it meets the requirements to be a VIE.

just throwing things out there.. gotta start somewhere.

[335_i]

Originally Posted by ktdw

IFRS isn't in effect yet, and my understanding is that it is now pushed off indefinetly b/c of the new head of the SEC...

could have sworn phase in starts in 2010...http://www.sec.gov/rules/proposed/2008/33-8982.pdf

[sokdo]

Originally Posted by jun

accounting is open to interpretation. just make sure you document your research and your conclusions in your working papers and you should be fine. i wouldn't go as far as calling another CPA firm, though. do you have access to accounting research manager? have you tried calling the national office for your firm?

http://www.rbh.com/pdf/article_mhenry_accounting.pdf will maybe help you get a quick understanding of a joint venture. This may bring in FIN 46R if it meets the requirements to be a VIE.

just throwing things out there.. gotta start somewhere.

Yup, we have accounting research manager and all it does is regurgitate the same documents we already have, which does not clearly state how to record it. The firm I work at is a LLP with several offices scattered throughout Cali and some in other states.
I actually e-mailed a partner firm to see what they get since nobody I talked to knows how to document a simple transaction in the balance sheet lol. I guess it's so hard because it's not widely practiced or it's a super secret.

[ktdw]

Originally Posted by 335_i

could have sworn phase in starts in 2010...http://www.sec.gov/rules/proposed/2008/33-8982.pdf

There was something about being certain filers being permitted to adopt in 2010, if that's what you mean. I imagine very, very few company will be able to or want to do that. For most, the key dates would have begun on 12/15/14. However, some people are thinking that it won't happen according to the roadmap you linked. That roadmap has not yet been ratified by the SEC, and the timing of the ratification is now in question because of economic concerns.

[jun]

Originally Posted by ktdw

There was something about being certain filers being permitted to adopt in 2010, if that's what you mean. I imagine very, very few company will be able to or want to do that. For most, the key dates would have begun on 12/15/14. However, some people are thinking that it won't happen according to the roadmap you linked. That roadmap has not yet been ratified by the SEC, and the timing of the ratification is now in question because of economic concerns.

I remember hearing a lot of the larger corporations would have to start implementation soon, whereas the other companies could start at a later date.

and yes I have also heard that IFRS is on backburners due to the economy.

[335_i]

Originally Posted by jun

I remember hearing a lot of the larger corporations would have to start implementation soon, whereas the other companies could start at a later date.

and yes I have also heard that IFRS is on backburners due to the economy.

I have heard that IFRS has been on the backburners as well, but I think that large C corps still have to meet the dual filing deadline...i may be wrong though