Question

On 1 July 2019 ABC Ltd acquired 50 000 shares in DEF Ltd at a price of $20 each. There were brokerage fees of $1000. The closing market price of DEF Ltd shares on 30 June 2020 which is the entity’s financial year end was $24. ABC Ltd has not made the election to account for its equity investments at fair value through Other Comprehensive Income.

Required:

Prepare the relevant journal entries for ABC Ltd to account for the investment in DEF Ltd using fair value through profit or loss.

Answer 1

1)Shares in DEF Ltd a/c DR (50000*20) $100000

Brokerage a/c DR $1000

To Bank a/c CR $ 102000

( Being shares purchased in DEF LTD)

2)Fair value through profit or loss a/c DR $2000

To Brokerage a/c CR $ 2000

(Being shares purchased in DEF LTD)

3) Shares in DEF Ltd a/c (50000*$ 4)DR $20000

To Profit on valuation of shares in DEF Ltd CR $20000

( Being profit on shares recognised on valuation date)

4) Profit on valuation of shares in DEF Ltd DR $20000

To Fair value through profit or loss a/c CR $ 20000

( Being profit on shares recognised on valuation date transfered to Fair value through profit or loss a/c)