ABC Co. reports under IFRS and has a December 31st year end. On January 1, 2020, ABC Co. purchased 3000 shares (30%) of the outstanding common shares of XYZ Inc. for $28/share in cash. XYZ Inc. provided the following statement of comprehensive income for the year ended Dec 31, 2020: Net income $22,500 Other comprehensive income 600 Comprehensive income $23,100 XYZ Inc. paid dividends of $1.20 per share during the year. Due to recent uncertainty in XYZ’s industry, shares were trading at $26.50 per share at year end. ABC CO.'s accountant is still investigating whether it will need to classify the investment as an investment in associate or FVTOCI. Required: a. Prepare the 2020 journal entries for ABC Co for the investments assuming the investment is classified as : i) investment in associate (equity method) ii) FVTOCI b. Calculate the value of the investment in XYZ Inc on the balance sheet of ABC Co. at December 31, 2020 as classified as: i) investment in associate ii) FVTOCI c. Use the below chart to show the effect (+/- $) on comprehensive income depending how the investment is classified. Include all calculations below your chart. (i) Invest in Associate (ii) FVTOCI Net income Other comprehensive income Comprehensive income d. Assume ABC Co. has 100,000 common shares outstanding through the year and has no preferred shares. Which treatment would result in a better earnings per share (EPS) for 2020 for ABC Co.? Explain showing your calculations of EPS for both.
ABC Co. reports under IFRS and has a December 31st year end. On January 1, 2020, ABC Co. purchased 3000 shares (30%) of the outstanding common shares of XYZ Inc. for $28/share in cash.
XYZ Inc. provided the following statement of comprehensive income for the year ended Dec 31, 2020:
|
Net income |
$22,500 |
|
Other comprehensive income |
600 |
|
Comprehensive income |
$23,100 |
XYZ Inc. paid dividends of $1.20 per share during the year. Due to recent uncertainty in XYZ’s industry, shares were trading at $26.50 per share at year end.
ABC CO.'s accountant is still investigating whether it will need to classify the investment as an investment in associate or FVTOCI.
Required:
a. Prepare the 2020
i) investment in associate (equity method)
ii) FVTOCI
b. Calculate the value of the investment in XYZ Inc on the
i) investment in associate
ii) FVTOCI
c. Use the below chart to show the effect (+/- $) on comprehensive income depending how the investment is classified. Include all calculations below your chart.
|
|
(i) Invest in Associate |
(ii) FVTOCI |
|
Net income |
|
|
|
Other comprehensive income |
|
|
|
Comprehensive income |
|
|
d. Assume ABC Co. has 100,000 common shares outstanding through the year and has no
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