On January 1, 2009, Billings Ltd. purchased 2,500 shares of Outlander Holdings for $87,500. During the time that this investment has been held by Billings, the economy and the investee company Outlander have experienced many good and bad times. In 2015, Outlander stated that it was experiencing a reduction in profits but was trying to get things to improve.
Required:
a. Assume that Billings applies the cost method to this investment because there is no active market for Outlander shares. In 2014, Billings had a general sense that the value of its investment in Outlander had probably dropped by about 8.6% to $80,000. This was not enough to trigger an impairment evaluation as it was still quite speculative. By 2015, seeing no improvement, Billings’ management completed an evaluation of the investment and estimated that the discounted cash flows from this investment was now $50,000.
Prepare the entries for 2014 and 2015, assuming that Billings follows IFRS, IAS 39.
Prepare the entries for 2014 and 2015, assuming that Billings follows ASPE.
b. Next, assume that Billings classifies the investment as a held-for-trading (HFT) because Outlander is a publically traded company. By the end of 2014, the price of Outlander shares had fallen from $34.00 the previous year to $32.00. By 2015, the price had dropped to a 52-week low of $25.00 per share. Prepare the entries for 2014 and 2015, assuming that Billings follows IFRS, IAS 39. Prepare the entries for 2014 and 2015, assuming that Billings follows ASPE.
c. Finally, assume that Billings had purchased the shares of Outlander because Outlander is an important customer and Billings wanted to secure a steady source of sales from them. For this reason, Billings classifies the investment as an availablefor-sale (AFS) investment. In 2014, Billings had determined that the value of its investment in Outlander was $80,000. By 2015, seeing no improvement, Billings’ management completed an evaluation of the investment and estimated that the discounted cash flows from this investment was now $50,000. Prepare the entries for 2014 and 2015, assuming that Billings follows IFRS, IAS 39.
