Question

Use for questions 42 and 43 -- Rushia Company has a FVTOCI investment in the 10%, 10-year bonds of Pear Co. The investment's carrying value is 3,200,000 at December 31, 2012. On January 9, 2013, Rushia learns that Pear Co. has lost its primary manufacturing facility in an uninsured fire. Using the simplified approach, Rushia determines that there is an impairment and the investment has a fair value of 2,300,000 and records a life-time 900,000 loss. Now it is June, 2014, and Pear Co. rebuilt its manufacturing facility, and its prospects have improved as a result.

43. If Rushia Company determines that the fair value of the investment is now 2,900,000 with continued improvement in Pear’s prospects forecasted and is using IFRS for its external financial reporting, which of the following is true?A. Rushia is prohibited from recording the recovery in value of the impaired investment.B. Rushia may record a recovery of only 600,000 in the income statement.C. Rushia may record a recovery of the entire 900,000 in the income statement.D. Rushia may record a recovery, but is limited to 80% of the value of the recovery.

Answer 1

Answer :

Rushia company had already recorded a life time loss of $900,000 add determined the fair value is $2,300,000  in comparison to the carrying value of 3,200,000.

Now If Rushia Company determines that with continued improvement in Pear’s prospects forecasted the fair value of the investment is now 2,900,000, Rushia may record a recovery of ($2,900,000 - $2,300,000) = $600,000

So, Correct Option is :

(B) Rushia may record a recovery of only 600,000 in the income statement.