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Calculate the value of the investment

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Question - ABC Co. reports under IFRS and has a December 31st year end. On January 1, 2020, ABC purchased 30% of the outstanding common shares of XYZ Inc., 300 shares for $1200 cash.

XYZ provided the following statement of comprehensive income for the year ended Dec 31, 2020:

Net income $500

Other comprehensive income $60

Comprehensive income $560

XYZ paid ABC dividends of $100 during the year. Due to a big announcement on significant progress with its research, XYZ's shares were trading at $5.50 per share at year end.

ABC's accountant is still investigating whether it will need to classify the investment as an investment in associate or FVTOCI.

Required -

1) Calculate the value of the investment in XYZ on the balance sheet of ABC at December 31, 2020 as classified as: i) investment in associate ii) FVTOCI.

2) Use the below chart to show the effect on comprehensive income depending how the investment is classified.

3) ABC will be renegotiating a large loan next year with their bank. Which treatment would result in a better debt-to-equity calculation to show the bank? Explain.

Reference no: EM132663862

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