EMI Inc. is a public company that operates numerous movie theatres in Canada. Historically, it operated as a trust and its business model consisted of distributing all of its earnings to shareholders through dividends. As a result of tax changes two years ago, it converted to a corporation and adopted a strategy of using its excess cash to invest in short-term and strategic investments. Some of EMI’s investment transactions for 2021 are identified below. In the last quarter of 2020, EMI purchased 40% of the outstanding voting shares of ABC. ABC is a movie distributor and has a contract with EMI whereby it pays management fees to EMI to have two of EMI’s executives on its strategic committee. Also, as part of the investment, one member of EMI’s board of directors is eligible to serve as a member of ABC’s board of 12 executive members. Just before year end, EMI signed as a guarantor for ABC’s newly issued debt, which it will use to build new movie theatres. EMI agreed to the arrangement, provided it could use ABC’s existing movie theatres as future collateral. ABC is also a public company and, of the remaining 60% of outstanding shares, no individual shareholder holds more than 1%. EMI is unsure of how to treat this strategic investment.

At the beginning of the year, EMI invested some of its excess money in corporate bonds with a face value of $100,000, for $94,758. The bonds pay a 6% semi-annual interest rate and provide an effective interest rate of 8% over three years. The bonds mature on January 1, 2024. Management has purchased similar corporate bonds in the past for short-term profits and continues to do so with its existing bonds. However, at the annual board meeting, management had stated its intention to hold these particular corporate bonds as an investment for earning income. EMI has the ability to hold the investment to maturity. EMI is unsure of how to record the investment upon inception and the initial subsequent semi-annual interest payment.

EMI also invested funds into two stock portfolios, A and B. Management’s intention for the investment is unclear; however, in the past, similar stock portfolios were purchased with the intention of holding only to generate a short-term gain. Portfolio A consists of a 5% ownership of shares in a publicly traded company, Masrani Corp., for a total investment of $25,000. Portfolio B consists of a 3% ownership in another private movie theatre, for a total investment of $15,000. Transaction costs for both portfolios were 2% of the purchase price. At year end, the fair value of portfolio A had dropped to $19,222. EMI is unsure of the method of measurement for each portfolio investment.

As EMI’s shares are trading on the capital market, its financial information and filings are tracked by an equity analyst who produces quarterly analyst reports. These reports are used by shareholders and future investors as an independent review of EMI’s results. It is now year end and management is preparing for a meeting with its equity analyst to review its accounting policies. The board of directors is expected to approve the financial statements after the meeting with the analyst.

An excerpt from EMI’s 2021 financial statements is shown below.

Consolidated Statement of Financial Position
As at December 31, 2021
Assets
Current assets
Cash and cash equivalents ............................................... $ 1,890,877
Accounts receivable ................................................................. 567,321
Inventory .................................................................................... 36,455
Securities
Bonds—FV-NI and held to maturity ..................................... 756,210
Portfolio investments (FV-NI and cost) ................................ 899,321
Total current assets ............................................................ 4,150,184
Property, plant, and equipment
Equipment ......................................................................... 12,321,888
Accumulated depreciation............................................... (3,490,211)
Net property, plant, and equipment ................................ 8,831,677
Long-term investments .......................................................... 21,999
Deferred tax assets ............................................................... 563,422
Total assets ..................................................................... $13,567,282

Instructions
Assume the role of EMI’s equity analyst and complete an analysis of EMI’s required application of accounting policies for investments. Discuss any choices and differences between IFRS and ASPE for information purposes only.