Florabama an independent power producer classified as a Variable Interest Entity (VIE) owns, power plant located in south western United States. Meyer and Saban Inc. are the investor of Florabama they contributed equal amount of equity their ownership 60% and 40. Both Meyer and Saban are independent and willingly agreed upon prior to the board terms. The agreement allows Saban to purchase 20% of power produced by Florabama at cost plus. Both Meyer has operating risk because Meyer owns majority of the voting rights whereas Saban has commodity price risk because of the cost plus arrangement. ASC 810-10-25-38A, list two characteristics which are a) the power to direct activities of a VIE that most significantly impact the VIE economic performance. Meyer and Saban Inc meet both of the characteristics of the primary beneficiary requirements as stated in ASC 810-10-25-38 and Florabama financials are consolidated up to Meyer and Saban financial statement.
The analysis of business risk ASC 810-10-25-24 most significant…show more content… The CEO of Florabama continues to be an employee of Saban and hold the power to direct the activities that affect the economic performance of Florabama. Saban will absorb 40% of the profit and losses of Florabama and maintains cost plus arrangement. I recommend that Meyer to account for the consolidation of Florabama. Meyer has the obligation to absorb losses or gain from Florabama and holds the power to direct the activities that most significantly impact the economic performance of Florabama. These activities are implemented by majority votes by the board of directors. Meyer has to consolidate financial statement with Florabama corporations as a single economic entity. Meyer has to measure the asset, liabilities and non-controlling interest of Florabama. In conclusion I recommend that Meyer as the primary beneficiary and controlling interest of
