Drummond Services Ltd., which reports under IFRS, acquired 25% of the common shares of Bella Roma Ltd.

Question:

Drummond Services Ltd., which reports under IFRS, acquired 25% of the common shares of Bella Roma Ltd. on January 1, 2012, by paying $1.8 million for 100,000 shares. Bella Roma paid a $0.50-per-share cash dividend in each quarter that was received on March 15, June 15, September 15, and December 15. Bella Roma reported profit of $1.1 million for the year. At December 31, the market price of the Bella Roma shares was $17 per share.

Instructions

(a) Prepare the journal entries for Drummond Services for 2012, assuming Drummond cannot exercise significant influence over Bella Roma but intends to hold the shares for a number of years.

(b) Prepare the journal entries for Drummond Services for 2012, assuming Drummond can exercise significant influence over Bella Roma.

(d) Prepare the journal entries for Drummond Services for 2012, assuming that the company reports under ASPE and has chosen to account for its investment using the cost model.

(e) Under ASPE, why do you think companies can choose to use the cost model?

(f) For (a), (b), and (d) above, track the movement in all accounts affected by this investment throughout 2012 in columnar format, showing the balance in the accounts at the beginning of the year and the amount of each transaction affecting the accounts during the year to arrive at the balance in the accounts at the end of the year.

Dividend
A dividend is a distribution of a portion of company’s earnings, decided and managed by the company’s board of directors, and paid to the shareholders. Dividends are given on the shares. It is a token reward paid to the shareholders for their...