MFI Holdings Inc. follows IFRS and applies the FV-OCI model with recycling and has adopted the option to show dividends received as operating activities. MFI’s SFP contained the following comparative data at December 31:
At December 31, 2020, the following information is available:
1. MFI Holdings had a single investment in shares at December 31, 2019. The investment cost $40,300 and was sold during 2020 for $40,000.
2. During 2020, dividends of $200 were received on shares classified as investments at fair value with gains and losses in OCI. 3
. Another investment, with the same classification, was purchased at a cost of $23,600. The fair value of this new investment at December 31, 2020, was $24,000.
Instructions
a. Prepare the 2020 journal entries to record the sale of the investment including the entry to transfer the holding loss that was realized out of OCI and into retained earnings, without recycling through net income. Ignore any income tax effects.
b. Calculate and reconcile the transactions that were recorded to the accounts Fair Value through Other Comprehensive Income Investments and Accumulated Other Comprehensive Income.
c. Using the direct and indirect methods, prepare a table that contrasts the presentation of all transactions related to the above financial statements and related investment transactions on MFI’s statement of cash flows. Be specific about the classification within the statement for each item that is reported.
d. How would your answer to parts (a) and (b) above change if the investments were accounted for using the fair value through net income model?
e. Under what circumstances would MFI not be allowed to use the fair value through other comprehensive income model?
