If a company reporting under ASPE decides to use the cost model to account for an investment in common shares, dividends received should be
A)credited to the Investment account.
B)credited to the Dividend Revenue account.
C)debited to the Investment account.
D)recorded only when 20% or more of the shares are owned.

Question

Quizplus · Accepted Answer

If a company reporting under ASPE decides to use the cost model to account for an investment in common shares, dividends received should be credited to the Dividend Revenue account. Under the cost model, the investment is initially recorded at cost, and subsequently adjusted for any impairment losses or changes in fair value. Dividends received are not considered a part of the fair value of the investment, but rather a return on the investment, which is recognized as revenue in the Dividend Revenue account. Therefore, option B is the correct choice. Option A and C are incorrect, as dividends are not recorded as part of the investment account. Option D is incorrect, as there is no requirement to own 20% or more of the shares to record dividends.

If a Company Reporting Under ASPE Decides to Use the Cost