The primary beneficiary of a variable interest enterprise:
A) must include the assets, liabilities, and results of the variable interest enterprise in its consolidated financial statements.
B) can simply record income on a cash basis when dividends are received or income accrued.
C) only recognizes a gain or loss on the sale of its interest in the variable interest enterprise.
D) only includes the results of the variable interest enterprise if it has in excess of 50% of the voting share capital of the variable interest enterprise.

Question

Quizplus · Accepted Answer

The primary beneficiary of a variable interest enterprise must include the assets, liabilities, and results of the variable interest enterprise in its consolidated financial statements according to accounting standards such as US GAAP and IFRS. This is because the primary beneficiary has the power to direct the activities of the variable interest enterprise that most significantly affects its economic performance and thus is deemed to have control over the enterprise. Therefore, the primary beneficiary should consolidate the financial statements of the variable interest enterprise in order to provide a complete and accurate picture of its financial position and performance. Choices B, C, and D are incorrect because they do not reflect the accounting treatment required for a primary beneficiary of a variable interest enterprise under accounting standards.

The Primary Beneficiary of a Variable Interest Enterprise