Rushia Company has a non-trading investment in the 10%, 10-year bonds of Pear Company. The investment’s carrying value is $3,200,000 at December 31, 2020. On January 9, 2021, Rushia learns that Pear Company has lost its primary manufacturing facility in an uninsured fire. As a result, Rushia determines that the investment is impaired and now has a fair value of $2,300,000. In June, 2022, Pear Company has succeeded in rebuilding its manufacturing facility, and its prospects have improved as a result. If Rushia Company determines that the fair value of the investment is now $2,900,000 and is using IFRS for its external financial reporting, which of the following is true?
Rushia Company has a non-trading investment in the 10%, 10-year bonds of Pear Company. The investment’s carrying value is $3,200,000 at December 31, 2020. On January 9, 2021, Rushia learns that Pear Company has lost its primary manufacturing facility in an uninsured fire. As a result, Rushia determines that the investment is impaired and now has a fair value of $2,300,000. In June, 2022, Pear Company has succeeded in rebuilding its manufacturing facility, and its prospects have improved as a result. If Rushia Company determines that the fair value of the investment is now $2,900,000 and is using IFRS for its external financial reporting, which of the following is true?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Rushia Company has a non-trading investment in the 10%, 10-year bonds of Pear Company. The investment’s carrying value is $3,200,000 at December 31, 2020. On January 9, 2021, Rushia learns that Pear Company has lost its primary manufacturing facility in an uninsured fire. As a result, Rushia determines that the investment is impaired and now has a fair value of $2,300,000. In June, 2022, Pear Company has succeeded in rebuilding its manufacturing facility, and its prospects have improved as a result.
If Rushia Company determines that the fair value of the investment is now $2,900,000 and is using IFRS for its external financial reporting, which of the following is true?
Rushia may record a recovery of $900,000.
Rushia may record a recovery of $600,000.
Rushia may record a recovery, but is limited to 80% of the value of the recovery.
Rushia is prohibited from recording the recovery in value of the impaired investment.
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