Question

Bonus: Assume iX Nuts was a listed entity with a share price of $10/share and an investor acquired 1% of the company for $10,000. The company paid a dividend of $1 share per share at year-end and the share price had moved to $12/share. 1. What is the company's dividend yield? How would the investor have 2. accounted for the investment upfront and how would the change in investment be accounted for at year-end? 3. What could the investor do at year-end to safeguard his investment assuming all equity market instruments are available to him?

Answer 1

Answer-(1)

Dividend Yield = Most recent dividend paid / Current mareket price *100

=>Dividend Yield= ($1/ $12)*100 = 8.33%

----------------------------------------------------------------------

Answer-(2)

investement will be accounted at cost on the initial cost.

Any income will be recorded in P/L account.

At the year end the Investemnt will be remeasured to its fair value.

Journal entry-

Date	Accounts	Debit	Credit
On the date of purchase	Investment in shares	$10000
	Bank		$10000
Year end	Bank	$1000
	Dividend Income (P/L)		$1000
	(1000 Share* $1 per share)
Year end	Investment in shares	$2000
	Fair value gain		$2000
	($12-$10)*1000 share

------------------------------------------------------

Answer-(3)

To safe guard his investment the investor can sell the shares and invest the amount at risk free Bonds or debentures.