Question

During year 1 ABC Inc. made an investment in 1000 shares of ABC Inc. at a cost of $1,500,000 and elected to classify the shares as FVOCI. ABC Inc.?s year end is December 31. At the year 1 and year 2 year ends the shares had a fair value of $1,600,000 and $1,750,000 respectively. In February of of year 3, ABC disposed of the shares for $1,725,000. Which of the following is the amount of the gain or loss that would be recognized in the P&L upon disposal of the shares under IFRS?

Answer 1

The amount of gain or loss recognized in the P&L upon disposal of the shares under IFRS is $125,000 ([$1,725,000 - $1,500,000] - [$1,750,000 - $1,600,000]).

Step-by-step explanation:

The gain or loss on the disposal of shares under IFRS is calculated based on the fair value changes during the holding period. In this scenario, the fair value of the shares increased from $1,600,000 at the year 1 end to $1,750,000 at the year 2 end. However, at the time of disposal in February of year 3, the fair value was $1,725,000.

The gain or loss is computed by comparing the cost of the investment ($1,500,000) with the fair value at the time of disposal ($1,725,000). Additionally, any unrealized gains or losses that were previously recognized in Other Comprehensive Income (OCI) would need to be reclassified to the Profit and Loss (P&L) at the time of disposal.