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Chapter 13: Q5ISTQ (page 658)

Under IFRS, a company:

(a) should evaluate only equity investments for impairment.

(b) accounts for impairment as an unrealized loss, and includes it as a part of other comprehensive income and as a component of other accumulated comprehensive income until realized.

(c) calculates the impairment loss on debt investments as the difference between the carrying amount plus accrued interest and the expected future cash flows discounted at the investment’s historical effective interest rate.

(d) All of the above.

Short Answer

Expert verified

Option (c) is correct

Step by step solution

01

Definition of Unrealised Loss

An unrealized loss is a loss that arises due to the decrease in the asset's value without selling it.

02

Under IFRS

Under the rules of the IFRS, a company has to calculate the impairment loss by the difference between the carrying amount, and their future cash flow must be discounted at the historical effective interest rate.

Hence option (c) is correct.

Option (a) is incorrect because this is not the guideline of IFRS.

Option (b) is wrong because this is not the guideline of IFRS.

Option(d) is wrong because not all choiceis correct.

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Most popular questions from this chapter

Question: Explain how trading debt securities are accounted for and reported?

(Gain on Sale of Investments and Comprehensive Income) On January 1, 2017, Acker Inc. had the followingbalance sheet.

The accumulated other comprehensive income related to unrealized holding gains on available-for-sale debt securities. The fairvalue of Acker Inc.’s available-for-sale debt securities at December 31, 2017, was \(190,000; its cost was \)140,000. No securities

were purchased during the year. Acker Inc.’s income statement for 2017 was as follows. (Ignore income taxes.)

ACKER INC.

BALANCE SHEET

AS OF JANUARY 1, 2017

Assets Equity

Cash \( 50,000 Common stock \)260,000

Debt investments (available-for-sale) 240,000 Accumulated other comprehensive income 30,000

Total \(290,000 Total \)290,000

ACKER INC.

INCOME STATEMENT

FOR THE YEAR ENDED DECEMBER 31, 2017

Dividend revenue \( 5,000

Gain on sale of investments 30,000

Net income \)35,000

Instructions

(Assume all transactions during the year were for cash.)

(a) Prepare the journal entry to record the sale of the available-for-sale debt securities in 2017.

(b) Prepare the journal entry to record the Unrealized Holding Gain or Loss for 2017.

(c) Prepare a statement of comprehensive income for 2017.

(d) Prepare a balance sheet as of December 31, 2017.

BE13-10 (L03) Scorcese Inc. is involved in a lawsuit at December 31, 2017. (a) Prepare the December 31 entry assuming it is probable that Scorcese will be liable for $900,000 as a result of this suit. (b) Prepare the December 31 entry, if any, assuming it is not probable that Scorcese will be liable for any payment as a result of this suit.

Under IFRS, a provision is the same as:

(a) a contingent liability (c) a contingent gain

(b) an estimated liability (d) None of the above

Distinguish between a current liability and a long-term debt
See all solutions

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