Q1

COX Limited is a multinational telecommunications company owned by a Canadian businesswoman.

It has numerous long-term investments in a wide variety of equity instruments.

Some investments have to be measured at fair value at each reporting date. In turn, the unrealized
gains will be reported in either net income or other comprehensive income. COX applies ASPE in its
general-purpose financial statements.

The CFO of COX has heard about the reporting standards for equity investments but has had limited
time to study them in detail. He would like you to prepare a presentation on the reporting
requirements. He wants to understand how equity investments should be reported. More specifically,
he wants to know

 which investments must be measured at fair value and what the main rationale for this
method of reporting is;
 how to determine whether the unrealized gains are to be reported in net income or other
comprehensive income and what the main rationale for the difference in reporting is; and
 which investments, if any, will still be reported using the cost method, using the equity
method, or on a consolidated basis.

Required:

Present the report of (1) FVTPL, (2) FVTOCI, (3) cost method, (4) investments in associates and (5)
investment in subsidiaries.

Explanation:
The following slides are presented as a sample answer for this question.
Slide #1
Slide #2

Slide #3

Slide #4

Slide #5
Q2

COX Limited is a multinational telecommunications company owned by a Canadian businesswoman.

It has numerous long-term investments in a wide variety of equity instruments.

Some investments have to be measured at fair value at each reporting date. In turn, the unrealized
gains will be reported in either net income or other comprehensive income. Since COX has
considerable external financing through a number of Canadian banks, it applies IFRS for public
companies in its general-purpose financial statements.

The CFO of COX has heard about the new reporting standards for equity investments under IFRS 9
but has had limited time to study them in detail. He would like you to prepare a presentation on the
reporting requirements. He wants to understand how equity investments should be reported. More
specifically, he wants to know

 which investments must be measured at fair value and what the main rationale for this
method of reporting is;
 how to determine whether the unrealized gains are to be reported in net income or other
comprehensive income and what the main rationale for the difference in reporting is; and
 which investments, if any, will still be reported using the cost method, using the equity
method, or on a consolidated basis.

Required:

Present the report of (1) FVTPL, (2) FVTOCI, (3) cost method, (4) investments in associates and (5)
investment in subsidiaries.

Explanation:
The following slides are presented as a sample answer for this question.

Slide #1
Slide #2

Slide #3

Slide #4

Slide #5

The cost method is used for internal purposes. Investments should not be reported at cost for
external reporting purposes.

Q3
On January 1, Year 5, Blake Corporation purchased 25% of the outstanding common
shares of Stergis Limited for $1,850,000.

The following relates to Stergis since the acquisition date:

Other
Net Comprehensive Dividends
Year Income Income Paid
Year 5 $ 51,800 $11,400 $74,000
Year 6 148,000 29,600 74,000

Required:
(a) Assume that Blake is a public company and the number of shares held by Blake is
enough to give it significant influence over Stergis. Prepare all the journal entries that
Blake should make regarding this investment in Year 5 and Year 6.

Date General Journal Debit Credit

January 1, Year 5
Investment in Stergis 1,850,000

Cash 1,850,000

To record purchase of 25% of Stergis.

December 31, Year 5

Investment in Stergis 12,950

Equity method income 12,950

To record 25% of Stergis's Year 5 net

income.

Investment in Stergis 2,850

OCI - Equity method income 2,850

To record 25% of Stergis's Year 5 OCI

Cash 18,500

Investment in Stergis 18,500

To record 25% of Stergis's Year 5 dividends.

December 31, Year 6

Investment in Stergis 37,000

Equity method income 37,000

To record 25% of Stergis's Year 6 net

income.

Investment in Stergis 7,400

OCI - Equity method income 7,400

To record 25% of Stergis's Year 6 OCI

 Cash 18,500

Investment in Stergis 18,500

To record 25% of Stergis's Year 6 dividends.

(b) Assume that Blake is a private company. Even though it has significant influence, it
chose to use the cost method to account for its investment. Prepare all the journal
entries that Blake should make regarding this investment in Year 5 and Year 6.

Date General Journal Debit Credit

January 1, Year 5
Investment in Stergis 1,850,000

Cash 1,850,000

To record purchase of 25% of Stergis.

December 31, Year 5

Cash 18,500

Dividend income 18,500

To record 25% of Stergis’s Year 5

dividends*

December 31, Year 6

Cash 18,500

Dividend income 18,500

To record 25% of Stergis’s Year 6 dividends.

(c) Not available in Connect.

Explanation:
(a)
December 31, Year 5
25% of Stergis’s Year 5 net income
25% × $51,800 = $12,950

25% of Stergis’s Year 5 OCI

25% × $11,400 = $2,850

25% of Stergis’s Year 5 dividends

25% × $74,000 = $18,500

December 31, Year 6

25% × $148,000 = $37,000

25% of Stergis’s Year 6 net income
25% of Stergis’s Year 6 OCI
25% × $29,600 = $7,400

25% of Stergis’s Year 6 dividends

25% × $74,000 = $18,500

(b)
December 31, Year 5
25% of Stergis’s Year 5 dividends
Cash (25% × $74,000) = $18,500

Dividend revenue: Note that under the guidance of the Section 3051, when applying the
cost method, all dividends are recorded as revenue when received or receivable
regardless of whether they represent liquidating dividends.
References

Q4

Baskin purchased 20,000 common shares (20%) of Robbin on January 1, Year 5, for
$275,000 and classified the investment as FVTPL. Robbin reported net income of
$85,000 in Year 5 and $90,000 in Year 6, and paid dividends of $40,000 in each year.
Robbin’s shares were trading at $16 per share on December 31, Year 5, and January 1,
Year 6. On January 1, Year 6, Baskin obtained significant influence over the operating,
investing, and financing decisions of Robbin when the controlling shareholder sold
some shares in the open market and lost control over Robbin. Accordingly, the
investment in Robbin was reclassified to an investment in associate. On December 31,
Year 6, Baskin sold its investment in Robbin for $17 per share.

Required:
Prepare all journal entries for Years 5 and 6 related to Baskin’s investment in Robbin.

Date General Journal Debit Credit

January 1, Year 5 Investment in Robbin 275,000

Cash 275,000

December 31, Cash 8,000

Year 5
Dividend income 8,000

Record dividend revenue declared and paid for Baskins

Investment.

December 31, Investment in Robbin 45,000

Year 5
Unrealized gain on FVTPL investment 45,000
 Record the revaluation of Investment.

Date General Journal Debit Credit

December 31, Year 6 Investment in Robbin 18,000

Equity method income 18,000

Share of Robbin's income

December 31, Year 6 Cash 8,000

Investment in Robbin 8,000

Baskin's share of dividends declared by

Robbin

Explanation:
December 31, Year 5
Dividend income paid by cash ($40,000 × 20%) = $8,000
Investment in Robbin (20,000 shares × $16 – $275,000) = $45,000

December 31, Year 6

Investment in Robbin ($90,000 × 20%) = $18,000

December 31, Year 6

Dividend income paid by cash ($40,000 × 20%) = $8,000
Sales of investment for cash (20,000 × $17) = $340,000
Investment in Robbin ($275,000 + $45,000 + $18,000 – $8,000) = $330,000
References