QUESTION 3 (15 MARKS: 27 MINUTES)

Lotus Bhd is a manufacturing company located in Kuala Terengganu. The company supplies pharmaceutical products to several pharmacies in Malaysia. Lotus Bhd has the following transactions related to its investments during 2020 and 2021.

Date

Transaction

7 January 2020	Acquired RM8,000,000 of 14% bonds for RM7,600,000 with a yield of 16% market rate. The bond is held to collect contractual cash flows purpose and interest is to be received at the end of the year.
1 March 2020	Acquired 50,000 ordinary shares of FAITH Bhd at RM11.70 per share and the brokerage commission was RM6,000. Due to the foreseeable increment in the FAITH Bhd share prices, Lotus Bhd intended to sell these shares in the first quarter of 2021.
12 July 2020	Acquired 80,000 shares of MIX Bhd at RM5.50 per unit with transaction cost of RM2,000. The shares were purchased for long-term investment.
31 December 2020	Received cash dividend of RM0.40 per share for its investment in the ordinary shares of FAITH Bhd.
30 April 2021	Sold 75% of the investment in FAITH Bhd at RM471,000.

Additional information:

1. At the end of 2020, the market value per share of FAITH Bhd and MIX Bhd were RM12.50 and RM6.20 respectively.
2. Lotus Bhd closes its account on 31 December every year.

REQUIRED:

(a) Prepare the related journal entries of the debt investment for the year 2020.

(b) Prepare journal entries to record the purchase, the dividend received, the fair value adjustment and the selling of investment in FAITH Bhd.

(c) Prepare the related journal entries to record the purchase and the fair value adjustment of the investment in MIX Bhd.

(d) Assume that Lotus Bhd acquired non-trading equity investment for RM30,000 in April 2020. The senior accountant of Lotus Bhd, Miss Sharifah recorded the value of the nontrading equity investment at the same value on 31 December 2020. Discuss the appropriate accounting treatment for the investment.