Ayayai Corp., a December 31 year-end company that applies IFRS, acquired an inve

Question

Ayayai Corp., a December 31 year-end company that applies IFRS, acquired an investment of 900 shares of Credence Corp. in mid-2013 for $26,850. Between significant volatility in the markets and in the business prospects of Credence Corp., the accounting for this investment presented a challenge to Ayayai. Toward the end of 2017, Credence discontinued the small annual dividend of $0.50 per share that it had been paying and announced that a major patent responsible for 50% of its income had lost most of its value due to a technological improvement by a competitor.

Situation 1: Credence Corp. is a publicly traded company on the Toronto Stock Exchange, and Ayayai has opted to account for its investment at FV-NI. By the end of 2016, the price of Credence shares had fallen to $26.50 per share from $29 the previous year, and by the end of 2017 they were trading at $11.10.

Situation 2: Credence Corp. is a private enterprise owned by a group of 20 investors and is a supplier of materials to Ayayai. Ayayai purchased the shares to cement the relationship between the two companies and has opted to account for its investment at FV-OCI. In late 2016, Ayayai was beginning to worry about its investment and determined that its value had probably fallen marginally to an estimated fair value of approximately $23,000 from $24,000 the previous year. In 2017, Ayayai was more concerned and, at year end, carried out a thorough analysis of the present value of the likely cash flows to be derived from this investment and estimated an amount of $11,200.

Ayayai Corp. adjusts the carrying amount of its investments directly when recognizing an impairment loss, and each type of investment income is accounted for and reported separately.

Date

Account Titles and Explanation

Debit

Credit

Dec. 31, 2017

SHOW LIST OF ACCOUNTS

LINK TO TEXT

Date

Account Titles and Explanation

Debit

Credit

Dec. 31, 2017

SHOW LIST OF ACCOUNTS

LINK TO TEXT

Date

Account Titles and Explanation

Debit

Credit

Dec. 31, 2017

Assuming Ayayai applies IFRS 9, prepare the appropriate journal entries at December 31, 2016, and December 31, 2017, under situation 1. (Credit account titles are automatically indented when the amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.)

Date

Account Titles and Explanation

Debit

Credit

Dec. 31, 2016

Dec. 31, 2017

SHOW LIST OF ACCOUNTS

LINK TO TEXT

Explanation / Answer

1) In 2013 it has purchased 900 shares for 26850.So effectively for $29.83

Now in 2016 since we are following FV-NI so the changes in fair values are routed through Net income. So Loss in Investment will be debited to Profit and Loss account. Also Dividend will also be credited as the company has paid dividend in 2016 and discontinued in 2017.

2016- Loss in Credence Investment a/c 2250- Will be trf to P&L Debit

To Credence Investment a/c 2250-Will be shown at 23850 bringing down further from 26100 in 2015 in Balance sheet.

2016-Cash/ Bank a/c Dr 450

To Dividend rec from Credence Inv a/c 450-This will be transferred to P&L credit

The entries for transfer to P& L a/c are given below

2016 - P&L a/c dr 2250

To Loss in Credence Investment a/c 2250

2016- Dividend rec from Credence Inv a/c 450

To P&L a/c . 450

2017- Loss in Credence Investment a/c Dr 13860-P&L Dr

To Credence Investment a/c 13860- Inv FV shown in B/S at 9990.

Since Dividend is discontinued in 2017 no entry for dividend.

2017- P& L a/c Dr 13860

To Loss in Credence Inv a/c 13860

2) 2016- Loss in Credence Investment a/c dr 1000

To Credence Investment a/c 1000

2016- Other Comprehensive Income a/c dr 1000

To Loss in Credence Investment a/c 1000

2016 - Cash/ Bank a/c dr 450

To Dividend rec from Credence Inv a/c 450

2016- Dividend rec from Credence a/c dr 450

To P& L a/c 450

2017- Loss in Credence Inv a/c dr 11800

To Credence investment a/c 11800

2017- Other Comprehensive Income a/c dr 11800

To Loss in Credence Investment a/c 11800

3) Though Ayayai is a private company and applies ASPE, since the Credence ia listed in Toronto stock exchange so the market prices are available. SO Ayayai can record at cost basis at the time of purchase and recognise profits or gains through Net income. So same entries of 1 will be repeated here and dividend recd is realised in Net Income.

Related Questions

Navigate

• Browse (All)
• Browse A
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.