Larry Inc. , Curly Inc. , Shep Inc. , and Mo Inc. each own one quarter (25%) of Stooge Inc. Their shareholder agreement states that at least three shareholders must agree on all major decisions. Stooge has four lines of business: comedy shows, merchandise sales, product endorsements and comedian coaching. Their shareholder agreement states that each shareholder is entitled to the profits generated by a particular line of business as measured by revenues less direct costs less allocated indirect costs as follows:

• Comedy shows - Larry
• Merchandise - Curly
• Endorsements - Shep
• Coaching - Mo

Further, since comedy shows represent the largest line of business, the shareholder agreement states that Larry is responsible for all wage costs.

 

Income statement for Stooge Inc.
Year-ended December 31, 2023
Revenues
Comedy shows		125,000
Merchandise		45,000
Endorsements		30,000
Coaching		20,000
Total		220,000
Direct (costs):
Comedy shows		(75,000)
Merchandise		(20,000)
Endorsements		(5,000)
Coaching		(1,000)
Total		(101,000)
Indirect (costs):
Rent expense	Note A	(25,000)
Wage costs	Note B	(20,000)
Other	Note A	(5,000)
Total		(50,000)
Income before taxes		69,000

Note A		Allocated to each business based on revenues.
Note B		Allocated evenly to each business

Discuss how the shareholders of Stooge should classify and account for their investment under IFRS. Determine the effect of this investment on income statement of each shareholder in 2023.

Answer rating: 100% (QA)

Under IFRS International Financial Reporting Standards the shareholders of Stooge Inc should classify and account for their investment as equity inves... View the full answer