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Prepare entries required including recognition of recovery

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On January 1, 2018, Mamood Ltd. paid $322,744.44 for 12% bonds of Variation Ltd. with a maturity value of $300,000. The bonds provide the bondholders with a 10% yield. They are dated January 1, 2018, mature on January 1, 2023, and pay interest each December 31. Mamood acquired the bond investment as part of its portfolio of trading securities and it accounts for the bonds at FV-NI, following IFRS. At December 31, 2018, Mamood's year end, the bonds had a fair value of $320,700.

  • During 2019, the economic outlook related to Variation Ltd.'s primary business took a major downturn, so that Variation's debt was downgraded. By the end of 2019, the bonds were priced at 85.5, and at December 31, 2020, they were selling in the market at 87. Conditions reversed in 2021 and the outlook for Variation Ltd. significantly improved, leaving its bonds with a fair value of 99.5 at December 31, 2021.

Instructions

Problem 1: Prepare all entries required for 2019, including recognition of the impairment in value if necessary, and for 2020.

Problem 2: Prepare all entries required for 2021, including recognition of the recovery of the impairment in value, if necessary.

Reference no: EM132958050

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