ACCT1511 TUTORIAL HOMEWORK

FINAL EXAM SEMESTER 1, 2008 QUESTION 4

(a) The financial statements do not reflect assets and liabilities held off-balance sheet (2
marks)
If loss of $233.6 billion is mentioned, bonus 1 mark.

(b)
Before:
After:

2,187.63/113.6 = 19.25

(1 mark)

(2,187.63+86.4)/(113.6-233.6) = -18.95 Not Meaningful because of negative

equity
If no calculation is given but answer says not meaningful to calculate because
of negative equity denominator, give 1 mark.

Decimal point is not critical

(c)

These Level 3 asset values are calculated using financial models based on
managements assumptions.
As such, the resulting valuation is of uncertain quality and may be overstated.
(2 marks)

As the $134 billion of Level 3 assets exceed shareholders equity of $113 billion, the
risk is that these assets could wipe out the shareholders equity of Citigroup. (1 mark)

The effectiveness of the hedges may attenuate the possible loss. (bonus 1 mark)

(d) Journal entries for (a)

Dr
Dr

Securities (Assets)
Shareholders Equity / Loss on devaluation
Cr
Liabilities

86.4 billion
233.6 billion
320 billion