Concept introduction:
Held to maturity: The Held to maturity is a type of investment which an investor intends to hold until maturity. These securities are recorded at amortized cost.
Trading: Trading securities are purchased by the investor for the purpose to sell within a short-term period to each profit. These securities are recorded at their fair value and any gain or loss is recognized in the income statement for that period.
Available for sale: All the other securities are considered as available for sale and these securities are recorded at their fair value and any gain or loss is recognized unrealized gain or loss until the securities are actually sold.
To discuss:
The reason for elimination of transactions between the parent and subsidiary in consolidation.
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Chapter A2 Solutions
Cornerstones of Financial Accounting
- Why might two companies choose to form a strategicalliance rather than pursue a merger or an acquisition?arrow_forwardHow do control issues affect mergers?arrow_forwardHi, may i know more clearer explanation to calculate the gain or loss on the disposal of the share between parent and subsidiaries ? plagiarism is not allowed.arrow_forward
- what is a good response to this post? Why must the eliminating entries be entered in the consolidation worksheet each time consolidated statements are prepared? Eliminating entries are crucial in the consolidation worksheet because they ensure that any intercompany transactions and balances are removed from the consolidated financial statements. This prevents double counting and provides a clear and accurate representation of the consolidated entity’s financial position. For instance, if a parent company and its subsidiary have intercompany sales, the revenue recorded by the parent and the corresponding expense recorded by the subsidiary must be eliminated to avoid inflating the consolidated revenues and expenses. Without these entries, the financial statements would not reflect the true economic substance of the group as a single entity (Phillips et al., 2021). How might this process under a GAAP basis compare to that under an IFRS basis? Under Generally Accepted Accounting…arrow_forwardWhats a good response to? Why must the eliminating entries be entered in the consolidation worksheet each time consolidated statements are prepared? Eliminating entries are pivotal in the consolidation process, ensuring intercompany transactions and balances are stripped away to reflect an accurate and transparent picture of the consolidated entity's financial standings and performance. Here are the essential reasons why these entries must be made with each preparation of consolidated statements: Preventing Double Counting: Intercompany deals, like sales and purchases between the parent company and its subsidiaries, need to be removed to avoid counting revenues and expenses twice. Without elimination, figures could be overstated, misrepresenting the consolidated entity's economic reality. Displaying True Financial Health: Intercompany balances, like receivables and payables, should be eradicated to convey a genuine financial position. These do not mirror real obligations or assets from…arrow_forwardWhich of the following items shall be cancelled on consolidation? a. Receivables related to intra-group sales b. Payables related to intra-group purchases c. Unrealised profit on intra-group transactions d. Loans related to intra-group lending e. All of the abovearrow_forward
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