Pharoah Corp. owns 75% of Flounder Inc. Both companies are in the mining industry. In 2020, Pharoah Corp. purchased a building from Flounder Inc. for $1,520. The building’s original cost is $25,000 and its carrying amount in Flounder Inc.’s financial statements is $1,100. Pharoah’s Contributed Surplus account contains a credit balance of $290 from previous related-party transactions. Flounder’s Contributed Surplus account is nil. There is no available independent evidence of the value of the building because it is a unique building in a remote part of the country. Pharoah subsequently sold the building, in 2021, to an unrelated party for $1,710. Both Pharoah and Flounder follow ASPE.

Using the related-party decision tree answer the following.

      

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Is the transaction in the normal course of operations? No Related-party transaction occurs Is the change in the ownership interests in the item transferred substantive? No (a) Yes Yes Is the amount of the exchange supported by independent evidence? No (a) Yes Yes Yes Is the transaction a nonmonetary exchange or transfer of a nonmonetary asset? Is the transaction an exchange of products or property held for sale in the normal course of operations to facilitate sales? No Does the transaction have commercial substance? No Yes Measure at carrying amount (b) Measure at exchange amount (a) Carrying amount is used for both monetary and nonmonetary transactions in these circumstances. (b) in rare circumstances, when the carrying amount of the item received is not available, a reasonable estimate of the carrying amount, based on the transferor's original cost, may be used to measure the exchange. No Is the transaction in the normal course of operations? No Related-party transaction occurs Is the change in the ownership interests in the item transferred substantive? No (a) Yes Yes Is the amount of the exchange supported by independent evidence? No (a) Yes Yes Yes Is the transaction a nonmonetary exchange or transfer of a nonmonetary asset? Is the transaction an exchange of products or property held for sale in the normal course of operations to facilitate sales? No Does the transaction have commercial substance? No Yes Measure at carrying amount (b) Measure at exchange amount (a) Carrying amount is used for both monetary and nonmonetary transactions in these circumstances. (b) in rare circumstances, when the carrying amount of the item received is not available, a reasonable estimate of the carrying amount, based on the transferor's original cost, may be used to measure the exchange. No

Answer rating: 100% (QA)

REQUIREMENT 1 Transaction if Sale and purchase of Building is not in normal ... View the full answer