1. Accounting for financial investments under new IAS: extensions
Chisme Company (see P13.2) makes certain changes to its investment portfolio in year 5. These changes – and the end-year 5 fair values of its investments – are set out below.
1 Chisme sells half of its Thingummy shares for 
355,000 in May year 5. The market value of the remaining shares is 
33/share at the end of year 5.
2 Dingsda experiences financial problems in year 5. At year-end, the market value of the shares is only 
10/share. Chisme’s management consider the investment impaired and decide to recognize the loss in income that year.
3 After a review of the company’s investments at end-year 5, Chisme’s management decide to reclassify the Coso bonds as an available-for-sale investment as they no longer plan to hold them to maturity. The fair value of the bonds then is 
363,200.
4 As a result of an overhaul of its business by new management, Truc makes profits in year 5 and resumes paying a dividend (of 
8/share) on its preference shares. (The preference dividend is not cumulative.) Although the company is unquoted, Chisme’s management use cash-flow-based valuation techniques to value the investment. They estimate its end-year 5 value at 
160,000 and classify Truc as an available-for-sale investment.
Required
Show the effect on Chisme’s year 5 accounts of the following events:
(a) Accrual and receipt of interest (on Coso bonds) and receipt of dividend (on Truc’s preference shares) during the year. Neither Dingsda nor Thingummy pays a dividend in year 5.
(b) Sale of Thingummy shares in May.
(c) Recognition of impairment of Dingsda investment at year-end.
(d) Transfer of Coso bonds to AFS category at year-end.
(e) Fair value accounting of Truc shares and fair value adjustment of other investments at year-end.
Use journal entries or the balance sheet equation.
