Consolidated Earnings Per Share

Advanced financial accounting PowerPoint presentation. In this presentation we will discuss consolidated earnings per share, get ready to account with advanced financial accounting, consolidated earnings per share, how do we calculate the earnings per share for a consolidated entity, the basic calculation for the earnings per share will in essence be the same as for a single Corporation. So there’s not too much difference between the consolidated earnings per share calculations and the basic earnings per share for one entity one Corporation. So the basic earnings per share is is computed by deducting income to the non controlling interest and any preferred dividend requirement of the parent from the consolidated net income. So we’re going to take the net income and then we’re going to deduct income to the non controlling the non controlling interest and any preferred dividend requirement. In other words, we’re going to take the consolidated net income and then remove or deduct income to the non controlling interest and and in preferred dividend requirement, then we’re going to take that number, the amount resulting is divided by the weighted average number of the parents common shares outstanding during the period covered. So it’s a pretty straightforward calculation for the basic earnings per share, we do have practice problems on it. However, if you want to brush up on calculating the basic earnings per share, we have that there. diluted consolidated earnings per share is going to be a more complex calculation.

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Securities Carried at Fair Value Accounting

In this presentation, we’re going to focus in on situations where we have securities carried at fair value using fair value accounting, this will typically be the case if one company is investing in another company, and they do not own above the 20%. That’s going to be basically the general rule. In other words, they don’t have significant influence, and therefore, we’re going to be using the fair value accounting method for them get ready to account with advanced financial accounting. In a prior presentation, we discussed in general different accounting methods we were going to use depending on the level of control or influence that one company has on another company we set what can be kind of arbitrary kind of points, which means zero to 20%. We’re going to use one method that they carried value 20% to 50%, the equity method and then 51 through to 100. We might be having a consolidation at that point. So now let’s break that down and concentrate on each of these in a little bit more detail This time, let’s focus in on this first category. Now this would be the category where typically most of the time you would be you would be accounting for something as in most cases, if you’re just investing if one company is just investing like a normal type of investment, just like an individual’s investing, they don’t expect to have really influence over the decision making process, because they have, they don’t have a controlling interest in order to do so it’s just a normal type of investment type of situation, that’s going to be the norm kind of here. And then once once the ownership gets over to a certain percentage 20% 20% being quite large, I mean, if you think about the number of shares that are out there for a large company or something like that, like apple or something like that, you would need a lot of shares to basically be constituting 20% ownership.

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Investments Using the Equity Method

This presentation we’re going to focus in on investments using the equity method. In other words, we’re going to have a situation where we have one company that’s investing in another company, this time they have significant influence. And therefore, we will be using the equity method to account for that investment, get ready to account with advanced financial accounting. In prior presentations, we gave an overview about different accounting methods that could be used based on different levels of influence and control those general rules being that if there is 20, or zero to 20%, ownership, we use the carried value 20 to 50%, which is where we’re going to focus in on now, the equity method, idea of there being that there is now significant influence. So in other words, if we own zero to 20%, that would be kind of like you investing in a large company like apple or whatnot. We’re the assumption being, we don’t have significant influence, even though we do have a vote of what happens However, when our vote gets to be 20% Have the total, that’s kind of a shady line or not completely solid line. But that’s kind of an arbitrary line that’s been drawn, then you’re thinking, Okay, now there’s pretty much significant influence. And therefore, we’re going to use a different method equity method, then if we’re over 51%, which is a more solid line, if you have more than 51%, and you’re voting on things, and you have like more than 51%, then you pretty much win. And that would mean control for that situation typically. And then we may use a different method, such as a consolidation. So we’re going to be focusing in here on the middle method, where we have significant influence where we have that lower line that’s a little bit fuzzy that 20% arbitrarily drawn. And then if you’re over the 51%, then it’s more likely that then you do have control and may be using the consolidated method. In that case. So equity method we’re focusing in on investments using the equity method, the equity method will reflect the investors changing interest in the investi. So we’re going to try to basically reflect what’s going on on the investor side with the change investment in the investi, the company that we are investing in that company, we have a significant influence over investment is recorded at the starting purchase price.

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