On January 1, 2 014, Melbourne Corporation, a public company, acquired 15,000 of the 50,000 outstanding common shares of Noah Corp. for $25 per share. The statement of financial position of Noah reported the following information at the date of the acquisition:
Assets not subject to depreciation ............... $290,000
Assets subject to depreciation ............... 860,000
Liabilities ....................... 150,000
1. On the acquisition date, the fair value is the same as the carrying amount for the assets that are not subject to depreciation and for the liabilities.
2. On the acquisition date, the fair value of the assets that are subject to depreciation is $960,000. These assets had a remaining useful life of eight years at that time.
3. Noah reported 2014 net income of $100,000 and paid dividends of $5,000 in December 2014.
4. Noah's shares are not actively traded on the stock exchange, but Melbourne has determined that they have a fair value of524 per share on December 31, 2014.
Melbourne Corporation accounts for its FV-N1 and FV-OCI investments under the provisions of IFRS 9.
(a) Prepare the journal entries for Melbourne Corporation for 2014, assuming that Melbourne cannot exercise significant influence over Noah and accounts for the investment at fair value through other comprehensive income.
(b) Prepare the journal entries for Melbourne Corporation for 2014, assuming that Melbourne can exercise significant influence over Noah's operations.
(c) How would your answers to parts (a) and (b) change if Melbourne had acquired the Noah shares on July 2 instead of January 1?
(d) Prepare the 2014 journal entries if Melbourne Corporation were a private company applying ASPE, clearly identifying the methods of accounting you have chosen.
(e) For your answers to (d), prepare a cable of the investment amount reported on the statement of financial position and the amount reported on the income statement under each approach identified. As a shareholder of Melbourne Corporation, which method of accounting do you think provides better information? Explain briefly.