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- This topic has 3 replies, 2 voices, and was last updated 8 years ago by MikeLittle.
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- October 4, 2015 at 6:35 am #274872
Dear Sir,
“Minny acquired a 14% interest in Puttin, a public limited company, on 1 Dec 20X0 for a cash consideration of $18m. The investment was accounted under IFRS 9 Financial Instruments and was designated as at fair value through other comprehensive income. On 1 June 20X2, Minny acquired an additional 16% interest in Puttin for a cash consideation of $27 million and achieved significant influence. The value of the original 14% investment on 1 June 20X2 was $21million. Puttin made profits after tax of $20 million and $30 million for the years to 30 Nov X1 and 30 Nov X2 respectively. On 30 Nov X2, Minny received a dividend from Puttin of $2 million which has been credited to OCE.
1) What does they mean by “fair value through other comprehensive income” in the above qns?
2) I do not understand the answer given :
“The investment had been designated as being at fair value through other comprehensive income. The gain of $21m – $18m = $3m now realised is not reclassified to P/L for the year, but may be transferred as a reserve movement from OCE to RE.”
3) To find investment in associates, they deducted dividends paid? Why is it so? I thought the formula for investment in associates : Cost of investment in associates + Share of Profits – impairment since acqusition? Is it any intra group dividends paid between subsidiary and associate must be eliminated and thus therefore, they deducted dividends paid?
Hope you can enlighten me as i have been figuring out the answers but i do not understand them.
Many thanks!
October 4, 2015 at 8:10 am #274888Fair value through OCE indicates the election made by the company as to how to treat the investment – either through statement of profit or loss or through statement of other comprehensive income. In this case, they’ve elected to treat movements in the investment through other comprehensive income.
The gain on the sale should not therefore go through profit or loss – it is reflected in comprehensive income and transferred into retained earnings on completion of the sale.
Investment in associate, working W5A, is calculated as:
Cost of investment +
Share of post-acquisition RETAINED earnings –
Any impairmentOk?
October 4, 2015 at 6:45 pm #274945Thanks for your help 🙂
October 6, 2015 at 1:22 pm #275169You’re welcome
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