Question

Feherty, Inc., accounts for its investments under IFRS No. 9 and purchased the following investments during December 2021: 1. One hundred and ten of Donald Company's $1,000 bonds. The bonds pay semiannual interest, return principal in 8 years, and include no other cash flows or other features. Feherty plans to hold 40 of the bonds to collect contractual cash flows over the life of the investment and to hold 70, both to collect contractual cash flows but also to sell them if their price appreciates sufficiently. Subsequent to Feherty's purchase of the bonds, but prior to December 31, the fair value of the bonds increased to $1,020 per bond, and Feherty sold 40 of the 70 bonds. Feherty also sold 25 of the 40 bonds it had planned to hold to collect the life of the investment. The fair value of the bonds remained at $1,020 as of December 31, 2021. 2. $25,600 of Watson Company common stock. Feherty does not have the ability to significantly influence the operations of Watson. Feherty elected to account for this equity Investment at fair value through OCI (FVOCI). Subsequent to Feherty's purchase of the stock, the fair value of the stock investment increased to $31.200 as of December 31, 2021. Required: 1. Indicate how Feherty would account for its investments when it acquired the Donald bonds and Watson stock. 2. For each of the following categories of Feherty's Investments, calculate the effect of realized and unrealized gains and losses on Feherty's net income, other comprehensive income, and comprehensive income for the year ended December 31, 2021: (a) any Donald bonds accounted for at amortized cost that were purchased and held at year end (b) any Donald bonds accounted for at amortized cost that were purchased and sold (c) any Donald bonds accounted for at FVOCI that were purchased and held at year end, (d) any Donald bonds accounted for at FVOCI that were purchased and sold, and (e) the Watson stock. Ignore interest revenue and taxes. Complete this question by entering your answers in the tabs below. Reg 1 Reg 2A Reg 2B Reg 2C Reg 2D Reg 2E For any Donald bonds accounted for at amortized cost that were purchased and sold, calculate the effect of realized and unrealized gains and losses on Feherty's net income, other comprehensive Income, and comprehensive income for the year ended December 31, 2021. Effect Not incomo Other comprehensive income Net effect on comprehensive income < Reg 2A Reg 2C > < Prey 5 of 5 !!! Next

Answer 1

Feherty In accounts - Investment under IFRS 9 - Financial Instrument - Dec 2021
110 of Donald Company $ 1000 Bonds
The Bond pay semiannual Interest- return Principal 8 Years
Feherty holds 40 of the bonds to collect Contractual cash flow
Balance 70 to HOLD
Either hold to collect Contractual cash flow OR
Sale the same when Price appreciation
But befroe 31st Dec , the fair value of Bond increased to $ 1020/ Bond
feherty sold 40 out of 70 Bond
Feherty also sold 25 out of 40 - which he pallned to hold to collect Contractual cash flow
Fair Value of the Bond $ 1020 till 31st Dec 2021
So One further analysis , We identified Bond position as below :
40 Bonds are hold to collect contractual cash flow					Amortized cost basis
70 Bonds are hold to for trading Purpose					FVOCI
Watson - Equity base					FVOCI
So as per above description , we noitced that out of 110 bonds
40 bonds hold by feherty for collect Contractual cash flow
over the period of time and classified as " Amortized cost"
Where as rest 70 Bonds accounted under FVOCI basis
As per Question , Bond price has been increased from $1000 to $ 1020
So difference in Bond Price $			20 / Bond
Income Recognition				Amnt($)
out of 40 == Sold 25 Bond				500	(25 Bond * $20 per bond)
out of 70 == Sold 40 Bond				800	(40 Bond * $20 per bond)
Total Effectibe Income				1300	A
Unrealised Gain / loss calcualtion					Amnt($)
Difference of 70 Bond - 40 Bond = 30 Bond *
Change in Price as mentioned above $20 / Bond					600	(30 Bond * $20 per bond)
Add
Watson Equity stock movement
$31200-$ 25600					5600
Unrealised Gain / loss calcualtion					6200	B
Total Comprehensive Income(A+B)					7500
As per Question -
40 Bonds are hold to collect contractual cash flow					Amortized cost basis
So above movement can not be part of " Unrealised gain / Loss and would not
be recognised under OCI