masters of the universe
1. Statement of the problem
The issue in the formation of Jupiter is how each company will treat their investment in the company. This paper will perform a consolidation analysis that follows the guidelines of the VIE model laid out in ASC 810-10. I will determine whether Jupiter is a Variable Interest Entity and who is the primary beneficiary.
2. Relevant Facts
• Saturn and Venus, two unrelated parties, formed Jupiter, a joint venture
• Saturn owns 51% and Venus owns 49%, contributing $561 and $539 (of manufacturing facilities) million respectively
• The purpose of Jupiter is to own and operate organic clothing design and manufacturing facilities to sell organic clothing to unrelated retailers
• Both companies received equity and debt securities for Jupiter
• Board is split between Saturn and Venus (4 and 4)
• Both companies can nominate individuals for CEO
• Actions that can be passed with simple majority vote: appointment and removal of CEO, decisions for capital call contributions, admission of new joint venture members, and mergers and acquisitions
• Saturn controls design, manufacturing, pricing and sales of the clothing
• Venus controls all decisions regarding distributing clothing in fulfillment of sales negotiated by Saturn
• Profits and losses are split by ownership percentage
• Saturn and Venus are not related parties
3. Suggested Solution
For the consolidation analysis of Jupiter, we will need to consider statements issued in regards to consolidations, Variable Interest Entities, and Joint Arrangements. The codification provides us first with guidance in Section 810-10 for identifying Variable Interest Entities. The formation is a VIE because it has 1 of the characters described in section 810-10-15-14. The first of these is if the total equity investment at risk is not sufficient to permit the legal entity to finance its activities without additional subordinate financial support. Part 1 of the section describes this as
The issue in the formation of Jupiter is how each company will treat their investment in the company. This paper will perform a consolidation analysis that follows the guidelines of the VIE model laid out in ASC 810-10. I will determine whether Jupiter is a Variable Interest Entity and who is the primary beneficiary.
2. Relevant Facts
• Saturn and Venus, two unrelated parties, formed Jupiter, a joint venture
• Saturn owns 51% and Venus owns 49%, contributing $561 and $539 (of manufacturing facilities) million respectively
• The purpose of Jupiter is to own and operate organic clothing design and manufacturing facilities to sell organic clothing to unrelated retailers
• Both companies received equity and debt securities for Jupiter
• Board is split between Saturn and Venus (4 and 4)
• Both companies can nominate individuals for CEO
• Actions that can be passed with simple majority vote: appointment and removal of CEO, decisions for capital call contributions, admission of new joint venture members, and mergers and acquisitions
• Saturn controls design, manufacturing, pricing and sales of the clothing
• Venus controls all decisions regarding distributing clothing in fulfillment of sales negotiated by Saturn
• Profits and losses are split by ownership percentage
• Saturn and Venus are not related parties
3. Suggested Solution
For the consolidation analysis of Jupiter, we will need to consider statements issued in regards to consolidations, Variable Interest Entities, and Joint Arrangements. The codification provides us first with guidance in Section 810-10 for identifying Variable Interest Entities. The formation is a VIE because it has 1 of the characters described in section 810-10-15-14. The first of these is if the total equity investment at risk is not sufficient to permit the legal entity to finance its activities without additional subordinate financial support. Part 1 of the section describes this as