VIE's, Intercompany Debt, and Consolidated Statement of Cash Flows

Post date: Mar 30, 2012 2:22:18 PM

Variable Interest Entities (VIE’s)

ØEstablished as a separate business structure

vTrust

vJoint Venture

vPartnership

vCorporation

ØFrequently has neither independent management nor employees

ØTypical purposes

• vTransfers of financial assets

• vLeasing

• vResearch and development

• vHedging financial instruments

Intra-Entity Debt Transactions - Debt Acquired from Outside

ØThe acquired debt must be treated as if it has been extinguished.

ØAny related gain or loss related to this “early extinguishment of debt” must be immediately recognized by the consolidated entity.

ØSubsequent payment of principal or interest is treated as a cash transfer.