MCQ-Open tuition Q18/30 - Double entry investment

SSnowSky9y ago

Hi Mike May you help to explain and show me the working how to find $1,375, I cannot understand and figure out. Thanks in advance. Q18 Within Promulgate's trial balance is a line entry " Investments at fair value through profit or loss 27,500 These investments are unusual in that the value changes in direct proportion with a specified market index. On 31 December, that index stood at 2740 but by 31 December, 2015 it had risen to 2803.5 What double entry is required to record the change in value of these investments in the year ended 31 December, 2015? Ans: Dr Investments $1,375 Cr Investment Income $1,375

MikeLittleTutor9y ago#1

That looks to me like the index at 31 December, 2014 should have been typed as 2670 and not 2740 Strange that no-one else has spotted that Thanks for pointing it out

SSnowSky9y ago#2

Hi Mike My sincere apologise, I have typed wrongly as 2740 and should be 2670. Please advise how do you work out the amount was $1,375, thanks

MikeLittleTutor9y ago#3

If the value was $27,500 when the index was 2670 ... ... and the index has now risen to 2803.5 ... ... and that's an increase of 133.5 ... ... which in percentage terms is an increase or 133.5/2670 x 100 = 5% .. ... and we apply that 5% to the value of the investments ... ... that means $27,500 x 5% = $1,375 ... ... then that's where you get $1,375 from! OK?

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