Excellent Electronics $($EE$)$ manufactures electronic components parts and sells them to corporate clients. EE is a public company that reports under IFRS.

Fiscal $2024$ was a year of growth for EE$.$ It launched several new product lines, and so far these products have been a success. During the year, EE experienced revenue growth and an increase in market share. The CEO was very satisfied, as her main goal for $2024$ was to improve profitability. She is very focused on share price and earnings per share, and she tends to reward decisions that she believes will improve these measures. She hopes that the increases in revenue and market share will soon trickle down to the bottom line.

You, CPA, are the external auditor for EE$$s December $31,2024,$ financial statement audit. The engagement partner would like you to review the financial reporting issues related to the preparation of EE$$s financial statements for the fiscal year of $2024.$

Summary from the meeting with engagement partner

$1.$ In $2024,$ EE undertook two transactions related to financial instruments

Investment

Management decided to invest in the stock market, selecting several public companies that have been receiving strong buy ratings from analysts. Management hopes to take advantage of the expected short$-$term increases in value so that the shares can be resold in the next fiscal year at a gain. Details of the investments are as follows:

Acquisition

Price per share

Trading price per share at Dec $31,2024$

ABC System Inc. $500$ shares

$$50$

$$55$

Money Sense Ltd$.2,000$ shares

$$100$

$$60$

Power Security Inc. $300$ shares

$$75$

$$85$

The CFO has stated that he would like fair value changes on the share portfolio to not impact net income, and he wants to know whether this is one of the options.

The investments are reported at acquisition price at December $31,2024.$

Bond

Due to favourable market conditions, EE decided to retire bonds in advance of their maturity date. Bonds with a face value of $$6,000,000$ were retired at $98\%$ on November $30,2024.$ The bonds paid $5\%$ interest every December $31$ and had been issued eight years earlier at par value.

The bookkeeper recorded the following journal entry on November $30$ to derecognize the bonds at retirement and pay accrued interest:

Dr$.$ Bond retirement expense $$6,155,000$

Cr$.$ Cash $$6,155,000$

$($$$6,000,000$ x $5\%$ x $11/12$ month$)($$$6,000,000($$$6,000,000$ x $98\%)$

$2.$ In January $2024,$ EE invested in a business call Delicious Inc. $($DI$).$ EE$$s management wanted to invest in the business as they see it as a good opportunity to bring together corporate clients. EE invested $$150,000$ and holders a $15\%$ ownership interest, while the other $85\%$ are held by other investors and the original founder, Richard.

EE$$s management was pleased that they got a seat in the board of DI$,$ and EE plans to become more involved in the business plan. Richard told the EE management team that he and other board members appreciate EE$$s increased involvement in decision marking because they truly understand the group dynamics.

EE has recorded the $$150,000$ investment as an $$other asset$$ for now because the accountant is not sure what to do with it$.$ The accountant has not recorded any other amounts in EE$$s accounts relating to DI and prefers to keep things as simple as possible. So far in $2024,$ DI has earned profits of $$50,000$ and has not paid any dividends.

Instructions

Assume the role of the CPA and discuss the financial accounting issue you identified in preparation of EE$$s final financial statements for fiscal year ending December $31,2024($use the case analysis framework covered in the course, refer to the $$Discussion Section$$ for reference if needed$).$