Question

As part of a global expansion and to ensure continuity of its supply chain, SWB Holdings Ltd acquired 100 000 shares in JA Industries Co. Ltd for $54 per share. Over the following four years the closing share price of JS Industries on SWB Holdings balance date was: 30 June 2020 30 June 2021 30 June 2022 1 June 2022 $65 $48 $39 $56 Required: 1. Prepare the required general journal entries for the period 1 July 2019 to 30 June 2022 assuming SWB Holdings Ltd accounts for the shareholding using fair value through Profit & Loss. 2. Prepare the required general journal entries for the period 1 July 2019 to 30 June 2022 assuming SWB Holdings Ltd accounts for the shareholding using fair value through Other Comprehensive Income. 3. Prepare a schedule showing the impact on profit for each of the accounting periods for the journals prepared in part a) and b) 4. Drawing on the appropriate accounting standard, explain the reason SWB Holdings would use either method shown in part a) and b)

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Answer 1

JOURNAL ENTRIES (in $) Debit Credit Assuming the use of fair value through profit or loss 11,00,000 30-06-2020 Investment in shares of JA Industries Co.Ltd. (65-54)*100000 FVTPL (Recognition of increase in fair value per share from $54 to $65) 11,00,000 17,00,000 30-06-2021 FVTPL Investment in shares of JA Industries Co.Ltd. (65-48) *100000 (Recognition of decrease in fair value per share from $65 to $48) 17,00,000 9,00,000 30-06-2022 FVTPL Investment in shares of JA Industries Co.Ltd. (48-39) *100000 (Recognition of decrease in fair value per share from $48 to $39) 9,00,000 (Recognition or de Assuming the use of fair value through other comprehensive income 11,00,000 30-06-2020 Investment in shares of JA Industries Co.Ltd. (65-54)*100000 FVTOCI (Recognition of increase in fair value per share from $54 to $65) 11,00,000

17,00,000 30-06-2021 FVTOCI Investment in shares of JA Industries Co.Ltd. (65-48) *100000 (Recognition of decrease in fair value per share from $65 to $48) 17,00,000 9,00,000 30-06-2022 FVTOCI Investment in shares of JA Industries Co.Ltd. (48-39) *100000 (Recognition of decrease in fair value per share from $48 to $39) 9,00,000 If fair value adjustment is done through profit or loss, the profit or loss will be affected in the given manner Year ending Year ending Year ending 30/6/2020 30/6/2021 30/6/2022 Fair value adjustments 11,00,000 -17,00,000 -9,00,000 If fair value adjustment is done through other comprehensive income, the other comprehensive section of profit or loss will be affected in the same manner As per the International Financial Reporting Standards on financial instruments, all the equity investments falling under its scope are to be measured at fair value in the statement of the financial position, with the recognition of any changes in the value through profit or loss except for those equity instruments for which the entity has irrevocably chosen to present any such changes in other comprehensive income (001.

In case of financial assets, reclassification is required between FVTPL,FVTOCI and amortised cost if there is any change in the objective of the entity's business model, thus rendering its previous model assessment no longer applicable. Such classification needs to be done prospectively, however, no reclassification is to be allowed for equity investments, measured at FVTOCI or where the fair value option has been exercised for financial assets.