Impaired Investments Limited (IIL) is in the real estate industry. Last year, the company divested itself of some major investments in real estate and invested the funds in several instruments as follows:
1. Investments in 5% bonds: currently carried at amortized cost.
2. Investments in common shares (no significant influence or control and not held for trading)-Company A; currently carried at fair value with gains and losses booked to income.
3. Investments in common shares-Company B: currently carried at fair value with gains and losses booked to other comprehensive income.
During the current year, similar bonds available in the marketplace are yielding 6%. Although the company is not certain, the controller feels this may be due to greater perceived risk associated with changes in the economy and specifically the real estate industry. The investment in Company A shares is significantly below cost at year end according to market prices at year end (Company Ns shares trade on a stock exchange). The investment in Company B shares is also below cost but the controller feels that this is just a temporary decline and not necessarily an impairment. The shares of Company B also trade on a stock exchange.
IIL is currently a private entity but has recently considered going public, perhaps in the next five years, and plans to adopt IFRS this year. It will also adopt IFRS 9.
Instructions
Adopt the role of the controller and discuss the financial reporting issues related to the IIL financial statements.