Question

P16.7A (LO 3, 4) AN Sandhu Ltd. has 400,000 common shares authorized and 120,000 shares issued on December 31, 2020. On January 2, 2021, Kang Inc., which reports under IFRS, purchased shares of Sandhu for $40 per share on the stock market from another investor. Kang intends to hold these shares as a long-term investment and initially categorizes it as FVTOCI.

Analyze investment and compare fair value, equity method, and cost method.

Kang's accountant prepared a trial balance as at December 31, 2021, under the assumption that the investment is valued at FVTOCI. Under this assumption, the trial balance included the following accounts and amounts related to the Sandhu investment:

Investments at FVTOCI

$1,320,000

Dividend revenue

90,000

OCI—holding gain or (loss)

120,000

Instructions

a. How many shares of Sandhu did Kang purchase on January 2? (Hint: Subtract the OCI—holding gain or loss from the investment account.)

b. What percentage of Sandhu does Kang own?

c. What was the amount of the cash dividend per share that Kang received from Sandhu in 2021?

d. What was the fair value per share of Sandhu shares at December 31, 2021?

e. Assume that, after closely examining the situation, Kang's auditors determine that Kang has significant influence over Sandhu. Accordingly, the investment account is adjusted to $1.4 million at December 31, 2021. What was the profit reported by Sandhu for the year ended December 31, 2021?

f. Assuming that Kang has significant influence over Sandhu, what amount will Kang report on its income statement for 2021 with regard to this investment?

g. How would your answer to part (f) change if Kang reported under ASPE and chose to use the cost method to account for its investment in Sandhu because the shares did not have a quoted market price?

Answer 1

I a) shares purchased by kang :- value of Frvestment on 31/07/2020=1320,000, (-) gain (oci) = 129,000 12,09,000 ShareS = 12,00 000 . 40 (price pershare) = 30000 (shanes) I b ). age of shares owned by ang = 30000x100 129000 = 25,) Dividend pee share = 90000 = 3 persh. 30,000 I a) Fair value per share of sondho = 13,20,000 30,000 = 44 & per share e) profit Reported by Sandhu:- FM 39000 shares profit adjustedis 1.4million $ F8 1,20,000 shares profit ?? => 120,000 x 1.4milin - 30000 = 56,00,000 $ Amount to be reported by kAng is his share of profit of 1.4 million $ which is to be added to Investment and not in Income statement. f