Question

In: Accounting

Manitoba Ltd. Purchased 1,000 shares of Spectrum Company for $20 per share on January 1, Year...

Manitoba Ltd. Purchased 1,000 shares of Spectrum Company for $20 per share on January 1, Year 1. Manitoba chose to classify this equity investment as FVOCI. On December 31, Year 1, the market price of Spectrum's stock was $23. On March 1, Year 2, all 1,000 shares of Spectrums stock were sold for $24 per share.

Under IFRS, on December 31, Year 1, the journal entry for this equity investment would include:
a) A credit to other comprehensive income for $3,000
b)A credit to Unrealized Gains for $3,000
c) A debit to other comprehensive income for $3,000
d) A credit to other comprehensive income for $1000

Under IFRS, ON March 1, Year 2, the journal entry for the sale of this equity investment would include:
a)A debit to other comprehensive income for $1000
b)A credit to gains on sale of equity investment for $4,000
c)A credit to other comprehensive income for $1,000
d) A credit to gains on sale of equity investment for $1,000

Solutions

Expert Solution

Ans 1(a) A credit to other comprehensive income for $3,000

As per IFRS 9 (Financial Instruments), Journal entry for the change in fair value of financial asset classified under FVOCI category at Balance sheet date would be as follows:

Date Particulars Debit Credit

12/31

Year1

Investment in Spectrum Co.(Financial Assets) A/c Dr

(Now Investment are carried at $23 Per share in Balance Sheet)

$3,000
To Other Comprehensive Income A/c (1000 Shares*$3($23-$20)) $3,000

Ans 2 (c) A credit to other comprehensive income for $1,000

As per IFRS 9 (Financial Instruments), Journal entry for the change in fair value at the time of disposal of finanicial asset classified under FVOCI category would be as follows:

Date Particulars Debit Credit

03/01

Year 2

Investment in Spectrum Co.(Financial Assets) A/c Dr $1,000
  To Other Comprehensive Income A/c (1000 Shares*$1($24-$23)) $1,000

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