On July 1 20X5,Helios Ltd acquired 100,000 shares in Havers Ltd for $10 per share.The shares were acquired for trading purposes.During the year ended June 30 20X6,Helios Ltd received a fully franked dividend from Havers Ltd amounting to $60,000.The income tax rate was 30%.At June 30 20X6,the shares were quoted in the market at $9 per share,although the fall in the market price was considered to be only temporary.As a result of this investment,Helios Ltd would:
A) Report a profit before tax from the investment of $60,000 and report the investment in its balance sheet at June 30 20X6 at an amount of $900,000.
B) Report a loss before tax from the investment of $40,000 and report the investment in its balance sheet at June 30 20X6 at an amount of $900,000.
C) Report a profit before tax from the investment of $60,000 and report the investment in its balance sheet at June 30 20X6 at an amount of $1,000,000.
D) None of the above.

Question

Quizplus · Accepted Answer

Since Helios Ltd acquired the shares for trading purposes, they would be classified as financial assets at fair value through profit or loss. Therefore, the investment would be reported at the market value of $900,000 at June 30 20X6. The fully franked dividend income of $60,000 would be added to the profit before tax from the investment. As the shares were quoted at $9 per share at June 30 20X6, the market value of the investment had decreased to $900,000, resulting in a loss before tax of $40,000. Option A and C are incorrect as they do not accurately reflect the accounting treatment for trading investments at fair value through profit or loss. Option D is incorrect as there is a clear accounting treatment for trading investments under International Financial Reporting Standards.

On July 1 20X5,Helios Ltd Acquired 100,000 Shares in Havers