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Explain how the investment would be classified

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Question - Satsuma Bhd bought 8% of Natural Herb's ordinary shares for RM210 million on 2 January 2016. Under general conditions, the shares would be categorised by Satsuma as an FVTOCI.

However Satsuma elected the fair value option for the investment. On 31 December 2016, the fair value of the shares held by Satsuma was RM215 million. Meanwhile, Natural Herb's net income for the year ended 31 December 2016 was RM320 million. Dividend declared by Natural Herb during 2016 was RM80 million.

Required -

a) Explain how the investment would be classified in Satsuma's statement of financial position.

b) Provide the journal entries during the year 2016 to account for the transactions.

c) Discuss the effect of this investment on 2016 income before taxes.

Reference no: EM133131759

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