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.

42. If Rushia Company now determines that the fair value of the investment is 3,900,000 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 900,000 in the income statement.C. Rushia may record a recovery of only 700,000 in comprehensive income statement.D. Rushia may record a recovery of 900,000 in the income statement and a OCI gain of 700,000.

Answer 1

Rushia has recorded a life time loss of 900,000 when it determines that the Fair value is 2,300,000 in comparison to the carrying value of 3,200,000

on June 2014 when Pear Co rebuilt its manufacturing facility and its prospects improved and Fair Value of Investment is determined at 3,900,000 i.e. improvement by 1,600,000 the accounting treatement will be as under

• the loss of 900,000 is to be reversed and
• the remaining fair value gain is to be recognised in OCI statement.

Hence option D is true i.e. Rushia may record a recoery o 900,000 in the Income Statement and a OCI gain of 700,000.