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(Solution) Clay is considering reclassifying its investment in Firm C from fair value

Clay Company owns the following marketable securities, all of which were purchased at the beginning of 2021:

Firm # Shares Owned by Clay Ownership Held by Clay Clay’s Cost Market Value (12/31/21) Annual Dividend Total 2021 Earnings
A 50,000 15% €40.00 €46.00 €0.75 €50,000
B 100,000 25% €10.00 €12.00 €0.30 €100,000
C 75,000 10% €25.00 €24.00 €0.60 €80,000

Clay Company follows International Financial Reporting Standards (IFRS).

10. In 2022, Clay is considering reclassifying its investment in Firm C from fair value through other comprehensive income to fair value through profit and loss when Firm C is selling for €22.00 per share. Which of the following best describes the impact of the reclassification on Clay’s 2022 pretax income if the fair value of Firm C is €22.50 per share at the end of 2022?
a. Recognize a €37,500 net gain
b. Recognize a €187,500 net loss
c. No impact because reclassification is strictly prohibited under International Financial Reporting Standards.

 

Related Answer: (Solution) Clay sold its investment in Firm A for €44.50 per share

 

Solution – Clay is considering reclassifying its investment in Firm C

Under International Financial Reporting Standards (IFRS), Correct the initial classification of equity instruments as either Fair Value Through Profit and Loss (FVPL) or Fair Value Through Other Comprehensive Income (FVOCI) is..Please click on the Icon below to purchase the FULL ANSWER at only $2