Explain how Dagga Inc should classify its investment

Assignment Help Financial Accounting

Reference no: EM132763446

Question - Ddan Inc. is a Canadian public company that cultivates and harvests cannabis plants and sells cannabis products into the Canadian recreational and medical markets. Boo Inc. is a Canadian public company that dries and cures harvested cannabis buds and processes it into cannabis products.

The following information is relevant to the two companies:

Boo Inc. has 25 million common shares and 2 million convertible debentures outstanding. Each debenture can be converted into 1 common share.

Ddan Inc. owns 3.125 million common shares of Boo Inc. and owns all of the convertible debentures of Boo Inc.

The Chief Operational Officer of Ddan Inc., Michelle, is a member of the board of directors of Boo Inc.

The two companies signed a "tolling" agreement in 2017 whereby Boo Inc. would dry and cure all of Ddan Inc.'s harvested cannabis plants (raw materials) and process it into a final product that can be sold to the final consumer. Ddan Inc. kept ownership of the raw materials and final product throughout the process and paid Boo Inc. a fee for its services.

On July 1, 2019, the two companies agreed to cancel the tolling agreement. During the period July 1 to December 31, 2019, Ddan Inc. sold raw materials to Boo Inc. for $12 million. Boo Inc. processed the raw materials into a final cannabis product (the same way as it did under the tolling agreement) and sold it to Ddan Inc. for $20 million, who in turn sold the final product for $22 million in 2020.

Ddan Inc. recorded revenue of $36 million in 2019.

Boo Inc. recorded revenue of $32.5 million in 2019, consists of tolling fees of $8 million and sale of cannabis products of $24.5 million (it also sold to companies other than Ddan Inc.).

Ddan Inc. uses FV-OCI (fair value through other comprehensive income) to account for its investment in Boo Inc.

Both companies have a December 31 year-end.

REQUIRED -

a. Explain in detail how Dagga Inc. should classify its investment in Bhang Inc. by referring to IFS10 - Consolidated Financial Statements and/or IAS28 - Investments in Associates and Joint Ventures, as applicable.

b. Explain in detail how Dagga Inc. should account for the transactions with Bhang Inc. in its 2019 financial statements.

c. What should Dagga Inc. disclose regarding its transactions with Bhang Inc. under IFRS8 - Operating Segments? Why?

d. Comment on the quality of earnings of Dagga Inc. for 2019.

Reference no: EM132763446

Questions Cloud

What role does job analysis and job evaluation play : What role does job analysis and job evaluation play in the compensation decision? Provide an example of an organization to support the position(s).

Prepare a memo to dwight and ike : Using the memo template prepare a memo to Dwight and Ike on the subject of manufacturing abroad, including:

What would the perfect manager look like : What would the perfect manager look like in terms of knowledge, skills, and abilities? What background should that person have? What about their experience.

Importance of knowledge management : 1. Explain the importance of knowledge management from the perspective of competition.

Explain how Dagga Inc should classify its investment : Explain in detail how Dagga Inc. should classify its investment in Bhang Inc. by referring to IFS10 - Consolidated Financial Statements and/or IAS28Explain in d

What are the effects of macroeconomics : What are the effects of macroeconomics to the investment environment?

Explain the concepts of the skills : Please, explain the concepts of the following skills, first. Then, discuss why these skills are very important for effective management.

Preparation of an income statement for the year : Electricity bills for the four quarters of the year were paid totalling 2700. Preparation of an Income statement for the year

Discuss what is canadian culture communities : Discuss what is Canadian Culture Communities? This subject is Management Cross Cultural.

User Account

All Pages