ABONG Rose AKENJI13200149Question 1Is the Enterprise

Topics: Generally Accepted Accounting Principles, Revenue, Revenue recognition Pages: 3 (700 words) Published: November 28, 2014
Question 1
Is the Enterprise a VIE as defined in the Codification Master Glossary? If so, what criteria cause it to be deemed a VIE? Assume that (1) the Enterprise does not qualify for any scope exceptions and (2) the equity investment by the Nominee Shareholders in the Enterprise represents equity investment at risk. The enterprise is a VIE as defined in the codification of the master glossary. From the narrative, nominee equity holders do not absorb the losses of the enterprise and do not benefit from the residual gain the residual gain rather goes to the WFOE. The nominee equity holders though they own 100% of the share cannot run the activities of the enterprise; the activities are run by the WFOE as they provide the intellectual property, employees, resources and other services to run the schools. The nominee shareholders equally pledge their equity rights to the WFOE and cannot transfer, sell or give their equity for encumbrance. This descriptions in the narrative are in line with the definition of a VIE as per ASC 810-10.

Question 2
If the Enterprise is deemed to be a VIE, would the WFOE (excluding any related party or de facto agency relationships) consolidate the Enterprise? The WFOE would consolidate the enterprise following ASC 810-10-25-38 because it says a reporting entity shall consolidate a VIE if the reporting entity has a variable interest that absorb a majority of the VIE’s expected losses, receives a majority of the VIE’s expected residual income or both. The WFOE receives a majority of the enterprise residual income and so should consolidate the enterprise. Question 3

What impact, if any, does the POA agreement have on the conclusion reached in Question 2? The POA does not change the conclusion reached in question 2 because the nominee shareholders still act on behalf of the WFOE and the provisions that made the enterprise a VIE does not change with the POA 4. Does the accounting analysis or conclusion...
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