Accounting for impairments under IFRS (Appendix 12B)
• LO12-2, LO12-8, LO12-9
Rell Corporation reports under IFRS No. 9. Rell has an investment in Tirish, Inc. bonds that Rell accounts for at amortized cost, given that the bonds pay only interest and principal and Rell’s business purpose is to hold the bonds to maturity. Rell purchased the bonds for €10,000,000. As of December 31, 2018, Rell calculates €750,000 of credit losses expected for default events occurring during 2019 and €450,000 of credit losses expected for default events occurring after 2019.
Required:
1. Assume the Tirish bonds have not had a significant increase in credit risk. Prepare the
2. Assume the Tirish bonds have had a significant increase in credit risk. Prepare the journal entry to record any impairment loss as of December 31, 2018.
3. Assume the Tirish bonds have not had a significant increase in credit risk, and that as of December 31, 2019, Rell calculates €650,000 of credit losses expected for default events occurring during 2020 and €350,000 of credit losses expected for default events occurring after 2020. Prepare the journal entry Rell would make with respect to any impairment loss as of December 31, 2019.
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Chapter 12 Solutions
INTERMEDIATE ACCOUNTING RMU 9TH EDITION
- Example 2) Fair value through profit or loss: Debt investment ABC Co. had the following transactions pertaining its trading investments: Feb. 1, 2021 Purchased $200,000 of 3-year, 6% bonds at 104. Interest is payable on each August 1 and February 1. Aug. 1, 2021 Received interest on the bonds. Dec. 31, 2021 The fair value of the bonds was 100. Instruction: Record the above transactions, using the fair value through profit or loss model. Also, prepare any required adjusting entry/entries at December 31, 2021. ABC Co. has a December 31 year-end.arrow_forwardIvanhoe Company purchased $324000 of bonds for $339000. If Ivanhoe intends to hold the securities to maturity, the entry to record the investment includes O a debit to Debt Investments at $324000. O a credit to Premium on Debt Investments of $15,000. O a debit to Debt Investments at $339000. O none of these choices are correct.arrow_forwardAs of 12/31/24, XYZ Inc. had available -for-sale debt investments with a fair value of $510,000, an amortized cost of $525,000, and a credit balance in the Fair Value Adjustment - Available for Sale Debt Investments account of $7,500. What is the amount of gain or loss reported by XYZ related to these available - for-sale debt investments and how should it be reported? O A. Unrealized Loss of $22,500, reported as part of Net Income. O B. Unrealized Loss of $22,500, reported as part of Other Comprehensive Income. OC. Unrealized Loss of $7,500, reported as part of Net Income. O D. Unrealized Loss of $7,500 reported as part of Other Comprehensive Income.arrow_forward
- E17.22 (L04) HIT (Impairment) Komissarov SA has a debt investment in the bonds issued by Keune AG The bonds were purchased at par for € 400,000 and, at the end of 2019, have a remaining life of 3 years with annual interest payments at 10%, paid at the end of each year. This debt investment is classified as held-for-collection. Keune is facing a tough economic environment and informs its investors that it will be unable to make all payments according to the contractual terms. The con troller of Komissarov has prepared the following revised expected cash flow forecast for this bond investment. Dec. 31 Expected Cash Flows 2020 € 35,000 2021 35,000 2022 385,000 total cash flow € 455,000 Instructions a. Determine the impairment loss for Komissarov at December 31, 2019. b. Prepare the entry to record the impairment loss for Komissarov at December 31, 2019. c. On January 15, 2020, Keune receives a…arrow_forwardRecording Entries for Impairment of Investments–AFS Atlanta Inc. holds an AFS bond investment in Falcons Corporation. The amortized cost of the investment is $84,300 on December 31, 2020. Atlanta Inc. estimates the fair value of the bonds to be $78,000. The unrealized loss of $6,300 is partially due to a credit loss of $4,800, with the remaining portion due to other factors. The company adjusted the AFS bonds to fair value through OCI on December 31, 2020. a. Record the impairment loss on December 31, 2020, assuming that the company does not intend to sell the investment and does not believe it is more likely than not that it will be required to sell the investment before recovery of any unrealized loss. b. Record the impairment loss on December 31, 2020, now assuming that the company intends to sell the investment. • Note: List multiple debits or credits (when applicable) in alphabetical order. Date Account Name Dr. Cr. a. Dec. 31, 2020 Unrealized Gain or Loss--OCI 1500 Allowance for…arrow_forwardRecording Entries for Impairment of Investments—AFS Atlanta Inc. holds an AFS bond investment in Falcons Corporation. The amortized cost of the investment is $351,250 on December 31, 2020. Atlanta Inc. estimates the fair value of the bonds to be $325,000. The unrealized loss of $26,250 is partially due to a credit loss of $20,000, with the remaining portion due to other factors. The company adjusted the AFS bonds to fair value through OCI on December 31, 2020. a. Record the impairment loss on December 31, 2020, assuming that the company does not intend to sell the investment and does not believe it is more likely than not that it will be required to sell the investment before recovery of any unrealized loss.b. Record the impairment loss on December 31, 2020, now assuming that the company intends to sell the investment. Note: List multiple debits or credits (when applicable) in alphabetical order. Date Account Name Dr. Cr. a. Dec. 31, 2020 Answer Answer…arrow_forward
- Required information Use the following information for the Exercises below. (Algo) [The following information applies to the questions displayed below.] Brooks Company purchases debt investments as trading securities at a cost of $74,000 on December 27. This is its first and only purchase of such securities. At December 31, these securities had a fair value of $81,000. Exercise 15-2 (Algo) Accounting for debt investments classified as trading LO P1 1. Prepare the December 27 entry for the purchase of debt investments. 2. & 3. Prepare the December 31 year-end fair value adjusting entry for the trading securities' portfolio and the January 3 entry when Brooks sells a portion of its trading securities (costing $37,000) for $38,750 cash. Complete this question by entering your answers in the tabs below. Req 1 Prepare the December 27 entry for the purchase of debt investments. View transaction list Req 2 and 3 Journal entry worksheetarrow_forward€ 17.4 (L01) (Debt Investments) Assume the same information as in E17.3 (in the picture)except that Roosevelt has an active trading strategy for these bonds. The fair value of the bonds at December 31 of each year end is as follows. 2019 $ 534.200 2020 $ 515,000 2021 $ 513,000 2022 $ 517,000 2023 $ 500,000 Instructions a. Prepare the journal entry at the date of the bond purchase. b. Prepare the journal entries to record the interest received and recognition of fair value for 2019. c. Prepare the journal entry to record the recognition of fair value for 2020. d. Discuss how the response to (c) will be different assuming Roosevelt has a strategy of held-for-collection and selling.arrow_forwardN company purchased debt investment at amortized cost at a discount of P20,000. Subsequently, N sold these bonds at a premium of P28,000. During the period the N held this investment, amortization of discount amounted to P4,000. How much is the gain/loss on the sale of the debt investment?arrow_forward
- Sheridan Company in its first year of operations provides the following information related to one of its available-for-sale debt securities at December 31, 2025. Amortized cost Fair value Expected credit loss (a) $50,800 41,600 12.450 Your answer is correct. What is the amount of the credit loss that Sheridan should report on this available-for-sale security at December 31, 2025? (Do not leave any answer field blank. Enter O for amounts.) Amount of the credit loss. $ 9200arrow_forwardBeresford Inc. purchased several investments in debt securities during 2020, its first year of operations. The following information pertains to these securities. The fluctuations in their fair values are not considered permanent. Held-to-Maturity Fair Value Fair Value Amortized Cost Amortized Cost Securities: 12/31/2020 12/31/2021 12/31/2020 12/31/2021 АВС Со. Вonds $385,000 $410,000 $377, 500 $370, 000 Fair Value Fair Value Trading Securities: 12/31/2021 $ 66,000 $ 87,000 $ 48,500 12/31/2020 Cost DEF Co. Bonds $ 55,000 $ 57,000 $ 54,000 $ 69,100 $ 49,000 $ 42,900 GEH Inc. Bonds IJK Inc. Bonds Available-for-Sale Fair Value Fair Value Cost 12/31/2020 $147,400 Securities: 12/31/2021 LMN Co. Bonds $161,900 $150, 000 What balance sheet amount would Beresford report for the total of its investments in bonds at 12/31/2020?arrow_forwardIvanhoe Corporation has municipal bonds classified as a held-to-maturity at December 31, 2025. These bonds have a par value of $732,000, an amortized cost of $732,000, and a fair value of $648,000. The company believes that impairment accounting is now appropriate for these bonds. (a) Your answer is partially correct. Prepare the journal entry to recognize the impairment. (List debit entry before credit entry. Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.) Account Titles and Explanation Debit Credit Loss on Impairment Debt Investmentsarrow_forward
- Cornerstones of Financial AccountingAccountingISBN:9781337690881Author:Jay Rich, Jeff JonesPublisher:Cengage Learning
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