Ias 39 financial instruments recognition and

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IAS 39: Financial Instruments — Recognition and Measurement IAS 1: Presentation of Financial Statements Section 1530: Comprehensive Income Section 3251: Equity IAS 28: Investments in Associates Section 3051: Investments 2. IFRSs classify certain investments as fair-value-through-profit-or-loss, whereas the CICA Handbook called these investments held for trading. 3. IFRS 9 has been issued as a replacement for parts of IAS 39. It will become mandatorily effective on January 1, 2013, with early adoption permitted start- ing in 2009. All nonstrategic equity investments will have to be valued at fair value with changes in fair value reported in net income; however, an entity can elect on initial recognition to report the fair value changes on an equity invest- ment that is not held for short-term trading in other comprehensive income. 4. A receipt of a liquidating dividend is reported in net income, whereas it used to be reported as a reduction in the investment account. 5. If the investor has other long-term interests in the associate over and above its equity investment, these other assets may have to be written down when the losses by the investee have wiped out any balance in the investment account. 6. The fair value of investments in associates for which there are published price quotations should be disclosed. Changes Expected in the Next Three Years 1. Fair value measurement guidance contained in individual IFRSs may be replaced by a single, unified definition of fair value, which may be defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (an exit price). It would reflect the highest and best use for the asset. 2. Authoritative guidance may be provided on the application of fair value mea- surement in inactive or illiquid markets. SELF - STUDY PROBLEM Part A On January 1, Year 5, High Inc. purchased 10 percent of the outstanding common shares of Lowe Corp. for $192,000. From High’s perspective, Lowe was a FVTPL invest- ment. The fair value of High’s investment was $200,000 at December 31, Year 5. On January 1, Year 6, High purchased an additional 25 percent of Lowe’s shares for $500,000. This second purchase allowed High to exert significant influence over Lowe. There was no acquisition differential on the date of the 25 percent acquisition.
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58 CHAPTER 2 INVESTMENTS IN EQUITY SECURITIES During the two years, Lowe reported the following: Profit Dividends Year 5 $200,000 $120,000 Year 6 270,000 130,000 Required: With respect to this investment, prepare High’s journal entries for both Year 5 and Year 6. Part B The following are summarized income statements for the two companies for Year 7: High Inc. Lowe Corp. Operating revenue $900,000 $600,000 Expenses (including income tax) 450,000 400,000 Profit before discontinued operations 450,000 200,000 Discontinued operations (net of tax) 20,000 Profit *$450,000 $180,000 * The net income of High does not include any investment income from its investment in Lowe Corp.
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  • Fall '12
  • Smith
  • Balance Sheet, Comprehensive income, Generally Accepted Accounting Principles, hiL01537_ch02_039-070.indd Page

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