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Referring to additional information (ii) in the question, Mixted change from simple investment to subsidiary as result of further acquisition, hence, this will result in Increase in fair value of deemed disposed investment, (the FV of deemed disposed investment – cost of investment). in this case, the FV is $15M and the cost is $10M. So, the increase in FV is $5m.
However, in the recent P2 revision kit by BPP, the increase in FV of $5M is NOT included in the retained earnings calculation, and there’s not even a calculation made on this in the answer provided, differ from the suggested solution provided by ACCA, why is it so? should the $5m included in the conso RE?
Referring to add. info (iii), the cost of acquiring 10% interest in Clarity on 1 june 2007 is $8m, and the FV on 1 june 2008 is $9m. how should i treat this? may you explain further on this part, as the suggested solution by acca and the solution provided by BPP is differ.
The acca solution, there’s 1m fair value realised. however, the bpp book stated that “cost = fair value of the date of significant influence is achieved”The question in BPP kit is not exactly the same than in past exam. In BPP kit, the investment in Mixted was treated as an investment in equity instrument at fair value, whereas in past exam is available-for-sale and restated at cost on Mixted becoming a subsidiary.
And pretty much the same thing with Clarity. BPP has changed the question so they are held at fair value. There has been no changes in fv during year, so no need to calculate anything in there.
Would be interesting to know why BPP changed the question in their kit. I’ve always felt that practize questions are easier than real exams, and this supports my thoughts..
there’s a difference if the simple investment is treated as either equity instrument and available for sale investment? i never knew about it. lol
could you pls explain further about this to me? thx
The gain or loss on derecognition of the investment is taken to other components of equity if:
i) an investment in equity instrument
ii)made an irrevocable election to hold the investment at fair value through OCI.in BPP book, both conditions are met, however, no gain or loss on derecognition adjustment in the other components of equity?
what if it’s an available for sale investment, therefore it should go to profit or loss?
and in suggested solution, DR. OCE 1m and CR. P/L 1m. it means that it’s realized. reserve back the double entry, so hence we DR. Equity instrument 1m, CR. OCE 1m initially, but why OCE?
in original question, it’s available for sale investment, it suppose to go directly to P/L?No, I don’t think it’s the classification making the difference, but the irrevocable decision to hold those investments at fair value through OCI, instead of charging changes to P&L.
I hope someone else would confirm and maybe explain a bit further. I’m only sitting this now in June, so would definitely not trust only on my quick thoughts in here.. 😀
The gain or loss on derecognition of the investment is taken to other components of equity if:
i) an investment in equity instrument
ii)made an irrevocable election to hold the investment at fair value through OCI.in BPP book, both conditions are met, however, no gain or loss on derecognition adjustment in the other components of equity?
what if it’s an available for sale investment, therefore it should go to profit or loss?
and in suggested solution, DR. OCE 1m and CR. P/L 1m. it means that it’s realized. reverse back the double entry, so hence we DR. Equity instrument 1m, CR. OCE 1m initially, but why OCE?
in original question, it’s available for sale investment, it suppose to go directly to P/L(IFRS 9)?
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