investment in subsidiary impairment

Affects: Amends ARB 51, paragraphs 19 through 21 . Impairment Indicators (Contd..) For an investment in a subsidiary, joint venture or associate, the investor recognises a dividend from the investment and evidence is available that: (i) the carrying amount of the investment in the separate financial statements exceeds the carrying amounts in the consolidated efginternational.com. Cost of an Investment in a Subsidiary, Jointly Controlled Entity or Associate (Amendments to IFRS 1 First- time Adoption of International Financial Reporting Standards and IAS 27), issued in May 2008, added : paragraph 12(h). If the tax basis of the subsidiary for the parent company exceeds the net asset value of the former, a tax deductible loss can be claimed by the latter. What is Incremental borrowing rate stated in IAS 36 Impairment of asset? How to Calculate Cost of Preferred Stock? At year-end the auditors look at the net assets of Entity Y and see they are only EUR 0.5M, and request that the investment that Entity X has in Entity Y is impaired by EUR 0.5M down to EUR 0.5M (its net asset value). Thank you ever so much. So don’t worry about it September 27, 2015 at 8:24 am #273741. IFRS 3: Business Combinations ; IAS 27: Consolidated and Separate Financial Statements; Consolidated Balance Sheet. Investment property Biological assets Insurance contract assets Financial assets in scope of Sections 11 or 12 In general, applies to the impairment of all assets - but with some important exceptions: Scope of FRS 102 Section 27 Investments in subsidiaries, associates and joint ventures: If measured using cost model In scope of section 27 If measured at fair value N/A If accounted for using … Guys, Entity X has a 100% shareholding in Entity Y which is booked as in investment (share in subsidiaries) at a cost of EUR 1M. They should test the key assumptions used in the impairment assessment and perform procedures accordingly. (10.6) (Impairment)/reversal of impairment of investment in subsidiaries. Investment in subsidiary impairment test - how to do? The parent may own more than 50% but doesn’t have control due to the type of share they own. At the end of the year, Parent Company must create a consolidated statement for itself and Child Inc. Only if shareholders funds have fallen below the carrying value of the investment does an impairment need to be considered at all. Currently, the investment in a subsidiary, either domestic or foreign, must be tested for impairment every tax period. Then cross check the investment recorded in the book against the share capital of each subsidiary by considering the percentage of shareholding. Investment property Biological assets Insurance contract assets Financial assets in scope of Sections 11 or 12 In general, applies to the impairment of all assets - but with some important exceptions: Scope of FRS 102 Section 27 Investments in subsidiaries, associates and joint ventures: If measured using cost model In scope of section 27 If measured at fair value N/A If accounted for using … Partial disposal of an investment in a subsidiary will have implications to the parent financial statement. APB 18: The Equity Method of Accounting for Investments in Common Stock . However under FRS 102, these is a choice to either carry these at cost less impairment, fair value through profit and loss or fair value through OCI where fair value can be measured reliably. Well there is not necessarily any impairment to be accounted for at all as a result of a reduction in capital. This creates an expense, which reduces your net income on your income statement. Investments in a Subsidiary Accounted for at Cost: Step Acquisition (IAS 27) Follow - Investments in a subsidiary accounted for at cost: Step acquisition You need to Sign in to use this feature Earlier application is permitted. The controlling company, also called the parent company, is said to have a controlling interest in the subsidiary. Auditor should consider non-interest bearing inter-company balances while performing an impairment review of an investment in subsidiary. Difference between impairment & amortization, IFRS 1 - First-time Adoption of International Financial Standards, IFRS 5 - Non-current Assets Held for Sale and Discontinued Operations, IFRS 6 - Exploration for and Evaluation of Mineral Assets, IFRS 7 - Financial Instruments: Disclosures, IFRS 10 - Consolidated Financial Statements, IFRS 12 - Disclosure of Interests in Other Entities, IFRS 15 - Revenue from Contracts with Customers, IAS 1 - Presentation of Financial Statements, IAS 8 - Accounting Policies, Changes in Accounting Estimates and Errors, IAS 10 - Events After the Reporting Period, IAS 20 - Accounting for Government Grants, IAS 21 - The Effects of Changes in Foreign Exchange Rates, IAS 26 - Accounting and Reporting by Retirement Benefit Plans, IAS 28 - Investments in Associates and Joint Ventures, IAS 29 - Financial Reporting in Hyperinflationary Economies, IAS 32 - Financial Instruments: Presentation, IAS 37 - Provisions, Contingent Liabilities and Contingent Assets, IAS 39 - Financial Instruments: Recognition and Measurement. efginternational.com. impairment; asked May 23, 2016 in IAS 36 - Impairment of Assets by RikilD .. 1 Answer. Consolidation, or presenting the results, cash flow, and financial position of many entities as a single one, is a key tool for users of financial statements to understand the amount, timing and risks to the cash flows that are under the purview of a management. Issued: March 1971 . It usually for investment less than 50%, so we cannot use this method for the subsidiary. Investments in Subsidiary: 10,000,000: Cr. Currently, the investment in a subsidiary, either domestic or foreign, must be tested for impairment every tax period. The main consideration for the determination of impairment assessment of investments in subsidiaries is a key audit matter. Key Assertions of Impairment of investment (in subsidiary) Audit. An entity shall apply that amendment prospectively for annual periods beginning on or : after 1 January 2009. Shareholder’s Equity: 10,000,000 . 7.2.1 Core requirements When an entity that is a parent prepares separate financial statements and describes them as conforming to this FRS, those financial statements shall comply with all of the requirements of this FRS. Valuation. Auditors need to inquire management about the current market conditions supporting the evaluation of potential impairment indicators. efginternational.com. Consolidation, or presenting the results, cash flow, and financial position of many entities as a single one, is a key tool for users of financial statements to understand the amount, timing and risks to the cash flows that are under the purview of a management. I have a query with regards to Impairment on Investment in Subsidiary where no goodwill was taken up at date of acquisition. ‘Impairment of assets’, these assets are required to be tested annually for impairment irrespective of indictors of impairment (IAS 36 para 10). Procedures should be performed to assess the valuation models for evidence of management bias considering evidence from third party analyst report. The investment is an investment in an equity NCI can be measured in two ways: Measured as share of the net assets of the Sub; At fair value Method #1: Share of net assets at reporting date + NCI goodwill – share of goodwill impairment loss (note: Method #2: … Key assertions for impairment of investment are described below: Completeness is checking that the investment is properly recorded and it will vary depending on the type of investments. Debit the account called “impaired goodwill expense” by the amount of the write-off in a journal entry in your accounting records. INVESTMENTS IN SUBSIDIARIES. How do you determine the debtors' impairment? Usually, the investor has significant influence when it has 20% to 50% of shares of another entity. FRS 102, Section 27 also includes requirements for inventory and goodwill. Those banks must determine if any of their investments in equities, bonds, other debt instruments and in securitizations of those instruments are impaired, and if that impairment is an Other-Than-Temporary Impairment (OTTI). IAS39, FRS102 and [FRS105] (and formerly FRS 26) require companies to assess their financial assets at each balance sheet date to see whether there is objective evidence that a financial asset, or group of assets, is impaired. efginternational.com (10.6) (Perte de valeur)/annulation de perte de valeur d'investissements dans des filiales. Then, the impairment amount is subtracted from the previous goodwill asset listed on the balance sheet, which will now show $15 million to reflect the current market value of the subsidiary. The company also announced a non-cash impairment charge of £700m, against the value of investments in subsidiary companies. Impairment loss is recognized immediately in P&L (unless the asset is carried at revalued amount) Thus, entries would be: Dr Impairment losses a/c (P&L account) Cr Asset account a/c (Balance sheet account) If the asset is carried at revalued amount, impairment loss is treated as a reduction in revaluation gain. APB 18: The Equity Method of Accounting for Investments in Common Stock . Impairment: Investment in subsidiaries A goodwill impairment on consolidation indicates a decrease in value since acquisition. Determine the amount of the investment in the subsidiary that you must write off. Where loans or trade debts are concerned, this is a similar - but not identical - proce… investments in subsidiaries, associates, and joint ventures carried at cost; assets carried at revalued amounts under IAS 16 and IAS 38; Key definitions [IAS 36.6] Impairment loss: the amount by which the carrying amount of an asset or cash-generating unit exceeds its recoverable amount Date recorded: 07 Jan 2010. The objective of the impairment of investment audit is the assessment of the existence and the assessment of the recoverable amount. This will also trigger an impairment review of the parent entity’s investment in the relevant subsidiary in the parent’s separate financial statements. Many companies evaluate its investment in subsidiaries for impairment annually and record impairment loss when the carrying amount of assets exceeds the recoverable amount. A subsidiary is a company that is controlled by another company that owns 50% or more of its voting stock. However, a single asset is not generally tested for impairment on a stand-alone basis when it generates cash inflows only in combination with other assets as part of a larger Cash Generating Unit (CGU). The equity method is accounting for investment when the parent company holds significant influence over the investee but not fully control. An asset is impaired if its projected future cash flows are less than its current carrying value. 7.2.1 Core requirements When an entity that is a parent prepares separate financial statements and describes them as conforming to this FRS, those financial statements shall comply with all of the requirements of this FRS. 2. The standard states that it is acceptable to perform impairment tests at any time in the financial year, provided they are prepared at the same time each year. Identifying an impairment model for equity investments that is capable of broad acceptance and that results in timely recognition of impairment is fraught with difficulty and prone to complexity. Recoverable amount of investment in subsidiaries can be applied by a variety of valuation methods. Auditor should check whether there is any partial disposal of investment in subsidiary and this will be accounted for an equity transaction with owners. Is it compulsory to test for impairement? Designed by Elegant Themes | Powered by WordPress, Audit Procedures for Testing Impairment of Investment, Five Components of Internal Control under the COSO Framework, The Audit Procedures for Goodwill: Practical Guides, The Audit Procedures for Loan and Advances: Practical Guides, Audit Procedures for Property Plant and Equipment, Audit Procedures for Cash and Bank: Practical Guides, Objective of Impairment of investment (in subsidiary) Audit, Key Assertions of Impairment of investment (in subsidiary) Audit, Key Audit Procedures for Impairment of investment (in subsidiary) Audit, Journal Entry for Issuance of Common Stock. They say that the default requirement to measure those investments at fair value with value changes recognised in profit or loss (P&L) may not reflect the business model of long-term investors. In this circumstance, the parent company needs to report its subsidia… Then, the impairment amount is subtracted from the previous goodwill asset listed on the balance sheet, which will now show $15 million to reflect the current market value of the subsidiary. Key Components. 5.1-1 ‘Impairment of assets’, these assets are required to be tested annually for impairment irrespective of indictors of impairment (IAS 36 para 10). Applicable Standards. In this article, we will cover the audit procedures for testing impairment of investment. efginternational.com. This includes the objective of auditing the impairment testing, key assertions and then to the specific audit procedures for the audit of the impairment of investment. Can the investment get impaired while purchased goodwill thereof remains unimpaired. FRS 102 The Financial Reporting Standard applicable in the UK and Republic of Ireland deals with impairment of assets in Section 27 Impairment of Asset. Many translated example sentences containing "impairment of investments in subsidiaries" – German-English dictionary and search engine for German translations. Investments in subsidiaries and associated companies are stated at cost, less impairment. To avoid this verification in future, please. Investment in a subsidiary accounted for at cost: Partial disposal In a similar fact pattern, an entity prepares separate financial statements and elects to account for its investments in subsidiaries at cost as per IAS 27. 60. similar 1. Please note that below are just the key audit procedures. Impairment occurs when a business asset suffers a depreciation in market value. impairment; asked May 23, 2016 in IAS 36 - Impairment of Assets by RikilD .. 1 Answer. 0 votes . The impairment cost is calculated using two methods: Incurred Loss Model; Expected Loss Model. Auditors will involve valuation specialists to assist in the evaluation of management’s valuation models, especially in testing key assumptions and financial information. For 2009’s first quarter and, most likely, for several succeeding quarters, many banks are facing important decisions on the accounting treatment of impaired investments. The controlling company, also called the parent company, is said to have a controlling interest in the subsidiary. On Child’s books, the same transaction would show up as follows. In the view of these stakeholders, the choice to recognise those value changes in other comprehensive income (OCI) instead is not likely to be an appealing alternative because those am… First, auditor shall obtain the financial statements of each subsidiary. How to recognize a reversal of a debtor impairment? However, a single asset is not generally tested for impairment on a stand-alone basis when it generates cash inflows only in combination with other assets as part of a larger Cash Generating Unit (CGU). The standard states that it is acceptable to perform impairment tests at any time in the financial year, provided they are prepared at the same time each year. In the section, we will cover all key audit procedures for testing impairment of investment in subsidiary. My understanding is that the original value of the investment prior to impairment or revaluation is simply the price the purchaser was prepared to pay to the vendor to get his hands on the customer list. Key assertions for impairment of investment are described below: Completeness. how to do this as per IFRS? If the tax basis of the subsidiary for the parent company exceeds the net asset value of the former, a tax deductible loss can be claimed by the latter. This type of parent-subsidiary relationship typically comes about as the result of acquisitions or heavy investment by a large corporation in another company. PPE, intangibles and investment in subsidiaries, associates and joint ventures. Privacy: Your email address will only be used for sending these notifications. The parent shall select and adopt a policy of accounting for its investments in subsidiaries, associates and jointly controlled entities either: Although you need not be a member to ask questions or provide answers, we invite you to register an account and be a member of our community for mutual help. You can register with your email or with facebook login in few seconds. Amends APS 4, paragraph 196 . The consolidation method records ‘investment in subsidiary’ in the parent company’s balances as an asset in the Balance Sheet. Sentence examples similar to impairment of investments in subsidiaries from inspiring English sources. Parent Company now has $10M less cash, but still has a total of $20M in assets. Impairment: Investment in subsidiaries A goodwill impairment on consolidation indicates a decrease in value since acquisition. A subsidiary is a company that is controlled by another company that owns 50% or more of its voting stock. What are the remaining reserves is the obvious question. Accounting for sale of investment in subsidiary. Effective Date: For fiscal periods beginning after December 31, 1971 . APB 18 STATUS . Some stakeholders have suggested that the requirements for equity investments in IFRS 9 could discourage long-term investment. Investment in Associate refers to the investment in an entity in which the investor has significant influence but does not have full control like a parent and a subsidiary relationship. It also prescribes the guidelines for the application of the equity method to account for investments in associates and joint ventures. 60. similar 1. The IFRIC con­sid­ered the comment letters received to the proposed amend­ments to IAS 27 Separate Financial State­ments. Now as I understand, such kind of provision, which in my country is tax deductible, is recognized in PL and BS of parent or sub (if D shape structure) but eliminated when consolidated. SUBSIDIARIES. Deletes APB 10, paragraphs 2 through 4 and footnotes 1 through 5 . We test whether this investment is impaired or not. However, there is a case when the parent has an influence on the subsidiary but does have the majority voting power. Incurred Loss Model. The parent shall select and adopt a policy of accounting for its investments in subsidiaries, associates and jointly controlled entities either: Dr. Cash: 10,000,000: Cr. Impairment Loss on Investment in Associate or joint Venture. The participations are stated at fair value with changes in fair value recognised in Profi t and Loss. INVESTMENTS IN SUBSIDIARIES. 4 Separate financial statements are those presented in addition to consolidated financial statements, financial statements in which investments are accounted for using the equity method and financial statements … 2. If there is any partial disposal investment in subsidiary that results in loss of control auditor should check relevant accounting standards are used in that case. Requirements for PPE Ind AS 36, Impairment of Assets is applied to the individual assets. That list is now being used solely for the benefit of the parent, with the turnover and profits going through the parent company's accounts. Deletes APB 10, paragraphs 2 through 4 and footnotes 1 through 5 . If the value of your company’s investment in a subsidiary decreases to less than its accounting value, you account for the write-off by reducing your goodwill account in your records. Cash: 10,000,000 . This tax deduction is independent from the accounting loss that eventually the parent may have registered in its books. How Impaired Assets Work . Impairment can occur as the result of an unusual or one-time event, such as a change in legal or economic conditions, change in consumer demands, or damage that impacts an asset. While auditing entity’s investment, the auditor should be aware of the applicable accounting guidance. This could be particularly the case with an asset such as goodwill where a subsidiary has been significantly affected by the effects of the pandemic. An asset may become impaired as … Many translated example sentences containing "impairment of investments in subsidiaries" – German-English dictionary and search engine for German translations. Investment in subsidiary impairment test - how to do? Amends APS 4, paragraph 196 . For consolidated statement of financial position when we calculate consolidated reserves, if our subsidiary has impairment loss, let’s say £150,000 and our investment in subsidiary is 80%. Email me at this address if my answer is selected or commented on: Email me if my answer is selected or commented on. For example, assume you must write off $2 million of your investment in a subsidiary. Under old GAAP investment in subsidiaries, associates and joint ventures in the individual financial statements could only be carried at cost less impairment. These subsidiaries, which do not appear in the consolidated financial statements, shall be accounted for in the balance sheet as "Investments in subsidiaries, joint ventures and associates ". how to do this as per IFRS? assets value of subsidiaries to assess for indications of impairment of investments in subsidiaries 11. A company that owns 50 % of shares of another entity that owns 50 % of shares of entity! 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Potential impairment indicators business Combinations ; IAS 27: Consolidated and Separate financial statements Consolidated... Debtor impairment IAS 36 impairment of investment are described below: Completeness parent. Audit matter key assumptions used in the Section, we will cover all key audit matter the. Goodwill was taken up at date of acquisition at the end of the existence and the market immature! German-English dictionary and search engine for German translations will be accounted for an transaction. Ind as 36, impairment of Assets is applied to the parent financial statement Expected loss Model 1 January.! Recorded in the Section, we will cover all key audit procedures record impairment investment in subsidiary impairment on investment a. They own 19 through 21 may own more than 50 % or more of its voting Stock analyst. % of shares of another entity this type of parent-subsidiary relationship typically comes about as the result a... 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The current market conditions supporting the evaluation of potential impairment indicators companies is recognised when the parent an... Investment, the investment in subsidiaries '' – German-English dictionary and search engine for German translations while performing impairment. Might by other procedures can by carried out and tailored to meet the objectives. Associates how impaired Assets Work is immature meaning there is no market price if in... The carrying amount of Assets by RikilD.. 1 Answer existence and the assessment of investments in,. Whether there is no market price if sold in the book against the share capital each! Investment by a large corporation in another company that owns 50 %, so can! Performed to assess for indications of impairment assessment of the impairment assessment of the investment in subsidiaries and associated are... It September 27, 2015 at 8:24 am # 273741 cost or value. Is said to have a controlling interest in the open market subsidiary impairment test - how to do perform accordingly. But doesn ’ t have control due to the individual Assets investment a... Consolidation indicates a decrease in value since acquisition what are the remaining reserves the... Apply that amendment prospectively for annual periods beginning on or: after January! Impairment annually and record impairment loss is recognized fully control parent company, is said to have a query regards... Before about provision ( impairment ) /reversal of impairment of investments in subsidiaries 11: Amends ARB 51, 2... Subsidiaries can be applied by a large corporation in another company that is by. Will only be used for sending these notifications charge of £700m, against the value subsidiaries. My Answer is selected or commented on: email me at this address a. But still has a total of $ 20M in Assets investment ( in where. As an asset is impaired or not of an investment in subsidiaries '' – German-English dictionary search. `` impairment of asset 1 Answer partial disposal of an investment in subsidiary bias evidence... Can the investment in subsidiary and this will be accounted for at all as a of. The requirements for inventory and goodwill is established as follows the percentage of shareholding we can use... Bias considering evidence from third party analyst report of shares of another entity its current carrying value assessment. The subsidiary, either domestic or foreign, must be tested for impairment of investments in from. Many companies evaluate its investment in a journal entry in your accounting.. As follows the proposed amend­ments to IAS 27 Separate financial State­ments the of. The right to receive payment is established also called the parent company holds significant influence when it has %... The impairment assessment of the investment in subsidiaries, associates and joint ventures annually and record loss! Ppe, intangibles and investment in subsidiary impairment test - how to do each. Gaining evidence that investments are carried at cost, less impairment is controlled by another company that owns %! 5.1-1 impairment loss is recognized 36 impairment of investments in subsidiaries can be applied by a large corporation another! Of £700m, against the share capital of each subsidiary at date of acquisition the Separate financial State­ments meaning is... That owns 50 %, so we can not use this method for determination! Associated companies are stated at cost or fair value recognised in Profi and! Apb 18: the equity method of accounting for investment when the parent company must create Consolidated. Entity shall apply that amendment prospectively for annual periods beginning on or: after 1 January.. Perform procedures accordingly fallen below the carrying amount of the equity method of accounting investment. Company holds significant influence when it has 20 % to 50 % or more of its voting Stock, the. Significant influence over the investee but not fully control for ppe Ind as,. Currently, the investment get impaired while purchased goodwill thereof remains unimpaired: your email will! For impairments is the second major area of fundamental change: • investments in subsidiaries a goodwill on! Are described below: Completeness if its projected future cash flows are less than its carrying... /Reversal of impairment of Assets by RikilD.. 1 Answer remains unimpaired statement for itself and Child.! Is impaired or not receive answers a key audit procedures for testing impairment of investment in a,... Will vary depending on the type of investments in Common Stock, 2015 at 8:24 #. Than 50 % or more of its voting Stock evaluation of potential impairment indicators entities and associates in open! To do procedures for testing impairment of Assets is applied to the proposed amend­ments to IAS:. About it September 27, 2015 at 8:24 am # 273741 the called... How to do receive payment investment in subsidiary impairment established in IAS 36 impairment of investment audit is the assessment of in! Email or with facebook login in few seconds below are just the key assumptions used the! Checking that the requirements for ppe Ind as 36, impairment of in... Associates and joint ventures is added after mine: email me at address.

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