WILEY

IFRS EDITION
Prepared by
Coby Harmon
University of California, Santa Barbara
12-1 Westmont College
 Learning
Accounting for Share Investments Objective 3
Explain the
accounting for
Investor’s Ownership Interest in Investee’s share investments.

Ordinary Shares

0 ------------------20% -------------- 50% -------------------- 100%

No significant Significant Control usually
influence on influence on exists
Investee Investee
Investment valued on
Investment Investment parent’s books using Cost
valued using valued using Method or Equity Method
Cost Method Equity Method (investment eliminated in
Consolidation)

The accounting depends on the extent of the investor’s influence over the
operating and financial affairs of the issuing corporation (the Investee).

12-2 LO 3
 Accounting for Share Investments

Holding of Less Than 20%

 Companies use the cost method.

 Investment is recorded at cost and revenue recognized

only when cash dividends are received.

 Cost includes all expenditures necessary to acquire

these investments, such as the price paid plus any
brokerage fees (commissions), if any.

12-3 LO 3
 Holding of Less than 20%

RECORDING ACQUISITION OF SHARE

INVESTMENTS
Illustration: On July 1, 2017, Lee Ltd. acquires 1,000 shares
(10% ownership) of Beal Ltd. Lee pays HK$405 per share.
The entry for the purchase is:

July 1 Share Investments 405,000

Cash 405,000

12-4 LO 3
 Holding of Less than 20%

RECORDING DIVIDENDS
Illustration: During the time Lee owns the shares, it makes
entries for any cash dividends received. If Lee receives a
HK$20 per share dividend on December 31, the entry is:

Dec. 31 Cash 20,000

Dividend Revenue 20,000

12-5 LO 3
 Holding of Less than 20%

RECORDING SALE OF SHARE

Illustration: Assume that Lee Corporation receives net
proceeds of HK$395,000 on the sale of its Beal shares on
February 10, 2018. Because the shares cost HK$405,000,
Lee incurred a loss of HK$10,000. The entry to record the
sale is:

Feb. 10
Cash 395,000
Loss on Sale of Share Investments 10,000
Share Investments 405,000

12-6 LO 3
 > DO IT!
Rho Jean Ltd. acquired 5% of the 400,000 ordinary shares of Stillwater Ltd.
at a total cost of NT$60 per share on May 18, 2017. On August 30,
Stillwater declared and paid a NT$750,000 dividend. On December 31,
Stillwater reported net income of NT$2,440,000 for the year.

Prepare all necessary journal entries for 2017.

May 18 Share Investments (400,000 × 5% × NT$60) 1,200,000

Cash 1,200,000

Aug. 30 Cash 37,500

Dividend Revenue (NT$750,000 × 5%) 37,500

12-7 LO 4
 Exercise 1
On April 1, Smith Company buys 4,000 ordinary
shares of Porter for $60,000, plus brokerage fees
of $1,200. On October 1, Smith sells 1,000
shares of Porter for $20,000, less brokerage fees
of $500.

Instructions
Prepare journal entries for the purchase and sale
of the Porter ordinary shares.

12-8
 Exercise 2
Stone Company had the following transactions pertaining
to short-term investments in equity securities.
Jan. 1 Purchased 1,500 ordinary shares of Quayle
Company for $9,150 cash plus brokerage
fees of $300.
June 1 Received cash dividends of $.50 per share
on Quayle Company shares.
Sept. 15 Sold 400 ordinary shares of Quayle
Company for $2,500 less brokerage fees of
$100.
Dec. 1 Received cash dividends of $.50 per share
on Quayle Company shares.
Instructions
Journalize the transactions.
12-9
 Exercise 3
The following transactions were made by Waite Company.
Assume all investments are short-term and are readily marketable.
June 2 Purchased 400 ordinary shares of Dolen
Corporation for $45 per share.
July 1 Purchased 200 Oslo Corporation bonds for
$220,000.
30 Received a cash dividend of $2 per share from
Dolen Corporation.
Sept. 15 Sold 120 shares of Dolen Corporation for $50 per
share.
Dec. 31 Received semiannual interest check for $11,000
from Oslo Corporation.
31 Received a cash dividend of $2 per share from
Dolen Corporation.
Instructions
Journalize the transactions.
12-10
 Exercise 4
On February 1, Milo Company purchased 1,000
ordinary shares (2% ownership) of Werth
Company for $30 per share plus brokerage fees
of $400. On March 20, Milo Company sold 200
shares of Werth for $5,800, less a $50 brokerage
fee. Milo received a dividend of $1.00 per share
on April 25. On June 15, Milo sold 300 shares of
Werth for $9,800 less a $100 brokerage fee.

Instructions
Prepare the journal entries to record the
transactions described above.
12-11
 Exercise 5
Trent Corporation's fair value through profit or loss portfolio of
stock investments consisted of the following at December 31,
2015:
Stock Number of Shares Cost
Carey Ordinary Shares 200 €28,000
Adler Preference Shares 400 6,000
Hill Ordinary Shares 300 9,000
Total €43,000
During 2016, the following transactions took place:
Feb. 5 Sold 50 ordinary shares of Carey for €8,000.
Mar. 30 Purchased 25 ordinary shares of Hill for €950.
Sept. 9 Purchased 50 ordinary shares of Hill for €2,000

Instructions
Prepare the journal entries to record the 2016 share
12-12
transactions.
 Reminder

Test 6 (Lihat Situs Kuliah)

- Bobot 5%
- 1 (satu) soal pilihan ganda
- Materi:
 Pertemuan 12 - Investasi Obligasi
 Pertemuan 13 - Investasi Saham
(kurang dari 20%)

12-13
 Copyright

“Copyright © 2016 John Wiley & Sons, Inc. All rights reserved.
Reproduction or translation of this work beyond that permitted in
Section 117 of the 1976 United States Copyright Act without the
express written permission of the copyright owner is unlawful.
Request for further information should be addressed to the
Permissions Department, John Wiley & Sons, Inc. The purchaser may
make back-up copies for his/her own use only and not for distribution
or resale. The Publisher assumes no responsibility for errors,
omissions, or damages, caused by the use of these programs or from
the use of the information contained herein.”

12-14