Question

Presented below is selected information related to the financial instruments of Whispering Company at December 31, 2020. This is Whispering Company’s first year of operations.

		Carrying Amount		Fair Value (at December 31)
Investment in debt securities (intent is to hold to maturity)		$41,500		$42,600
Investment in Chen Company stock		874,600		991,000
Bonds payable		202,900		179,200

(a) Whispering elects to use the fair value option for these investments. Assuming that Whispering’s net income is $106,400 in 2020 before reporting any securities gains or losses, determine Whispering’s net income for 2020. Assume that the difference between the carrying value and fair value is due to credit deterioration.

Whispering’s net income for 2020

$

Answer 1

We need to determine Fair Value movement as per IFRS 9. As per IFRS 9, we need to find out position of investment, whether it Hold Till Maturity (HTM), Trading Purpose, or available for Sale. Now determine difference between carrying amounts Vs Fair value Carrying amount Differenc Remarks e Fair value (Dec 31) $42,600 $41,500 $1,100 Investment in debt securities (HTM) Treated as HTM, adjust in carrying amount $874,600 $991,000 $116,400 Adjust in carrying amount Investment in Chen company stock Bonds Payable $202,900 $179,200 Nil Carrying amount higher than fair value Total movement of Fair value $117,500 Calculating Whispering's net income for 2020: Net Income $106,400 Add: Change in fair value $117,500 Net income 2020 $223,900 Journal entry related to Bond fair value movement Particulars Debit Credit Bonds Payable 23,700 Profit & Loss A/C 23,700