1. Cold Attempt First: BEV in Brief + Blank Deliverables

Work from the actual PBL handout if you have it. If not, this brief contains every number you need. Set a timer, solve on paper, and do not turn the page until you have classified all three investments, journalized every event, and filled both blank tables below.

1.1 The scenario in brief

Birds-Eye View Inc. (BEV) is a TSX-listed (→ IFRS) commercial drone manufacturer, December 31 year-end. You are a co-op student in its financial reporting group. During 2025 BEV invested excess cash in three share purchases; nothing has been recorded yet:

1.2 Your blank deliverables (reproduce on paper)

First commit to the classification calls, one line of argument each:

Then journalize (initial / dividends / year-end for each) and complete the two PBL tables:

Done? Now mark yourself against §4–5, entry by entry, cell by cell. The gap between your attempt and the playbook is your personal study list.

2. The Problem-Solving Process = the Marking Scheme

The posted Birds-Eye View solution is organized as the AFM 291 Problem-Solving Process: Assess the Situation → Identify the Issue(s) → Analyze the Issue(s) → Recommend. Each process step maps to a component the marker expects to see. Reproduce this structure every time:

3. “Assess the Situation”: the Efficient First Pass

• 1. Anchor the entity: public or private? BEV is TSX-listed → IFRS. (Private → ASPE possible: policy choice for associates, no OCI anywhere.) Note the year-end.
• 2. Build the timeline: one line per dated event with amounts (model below).
• 3. Compute ownership % immediately: shares bought ÷ shares issued and outstanding. Cutting Edge 235,000/1,000,000 = 23.5%; CDS 11,100/13,000,000 = 0.085%; CEU 15,000/6,000,000 = 0.25%. This single division sorts strategic from non-strategic.
• 4. Highlight intent words: “held for trading,” “not holding for trading,” “made an irrevocable election,” “plans to sell within the year.” These decide FVPL vs OCI election.
• 5. Highlight influence facts: supplier/customer relationships and whether the case says they are MATERIAL to both parties; board seats; shared personnel; technical information.
• 6. Flag every dollar that needs a home: transaction costs (capitalize or expense?), dividends (total or per-share?), year-end prices (used or red herring?).
• 7. Name the issues in standard language (financial asset? classification?), then start writing.

What a full-marks timeline looks like (this is the exact format of the posted solution, copy it):

4. Classification Playbooks A–C (BEV numbers throughout)

Each playbook runs the lecture's four-step “Classification: Connection to Case Facts” frame: (1) is it a financial asset? (2) strategic or non-strategic, influence? (3) if non-strategic: SPPI rules out AC/FVOCI → default FVPL; (4) held for trading? election available and made? Every step gets one case fact.

Playbook A: Investment in Associate (equity method): Cutting Edge

• Triggers: ownership ≥ 20% (23.5%); or < 20% with strong influence evidence. Reinforcers: material supplier/customer relationship, board representation.
• Argument skeleton: equity instrument → financial asset (IAS 32) → 23.5% ≥ 20% → presumed significant influence (IAS 28.5) → reinforced by material intercompany purchases of blades/propellers (IAS 28.6(c)) → strategic → Investment in Associate → equity method.

Placement: B/S “Investment in Associate” $3,858,595 (= 2,151,790 − 220,195 + 1,927,000). P&L: $1,927,000 in the INVESTING category. OCI: nil.

Playbook B: Equity with OCI Election: CDS

• Triggers: small stake (0.085%) + “not holding for trading” + the case explicitly says the irrevocable election was made at acquisition. If the case is silent on the election, the default is FVPL.
• Argument skeleton: financial asset → < 20%, no influence evidence (chip volume not material to either party) → non-strategic → cash flows are dividends/residual/disposition proceeds, not SPPI → amortized cost and FVOCI unavailable → default FVPL → but not held for trading + irrevocable election made at initial recognition → Equity, OCI election.

Placement: B/S $1,820,400. P&L (investing category): $1,044 dividend. OCI: $381,800, never recycled on sale.

Playbook C: FVPL (held for trading): CEU

• Triggers: “portfolio of investments held for trading purposes” (0.25% stake), short-term profit intent. Held for trading makes the OCI election UNAVAILABLE.
• Argument skeleton: financial asset → < 20%, no influence facts → non-strategic → fails SPPI → default FVPL → held for trading, so the election is not applicable → FVPL.

Placement: B/S $1,095,000. P&L (investing category): 274,500 − 3,740 − 210,000 = $60,760 net. OCI: nil. Cash flow statement: the purchase itself is an OPERATING outflow (held for trading, IAS 7 ¶14(f)); dividends received are investing.

The whole case on one tree, this recap is the answer skeleton for any three-investment scenario:

5. The Deliverable: BEV's Two Completed Tables

Question 2 of the PBL is transcription of your work into statement form. Use informative account names, that is explicitly marked.

*$274,500 dividends − $3,740 transaction fees − $210,000 holding loss = $60,760. Everything investment-related sits in the INVESTING category of net income, nothing in operating or financing; the OCI-election fair-value gain is the only OCI item.

6. Red-Flag Phrases: What the Case Writer Is Signalling

7. The Mistakes That Actually Cost Marks

• 1. Recording dividend income on an associate. Equity-method dividends credit the investment. (Mirror error: reducing an FVPL investment for dividends.)
• 2. Marking an associate to market. The year-end share price is only relevant on the non-strategic branch.
• 3. Computing the FV adjustment off the price change instead of (shares × price) − carrying amount, capitalized fees live in the carrying amount ($381,800, not $388,500).
• 4. Expensing transaction costs under the OCI election (or capitalizing under FVPL). The treatments are opposites; state the rule as part of the entry.
• 5. Routing elected-investment dividends through OCI. Dividends always hit net income.
• 6. Skipping the SPPI step. “Not AC/FVOCI because share cash flows are not solely payments of principal and interest” must appear before you land on FVPL, the tree walk is marked.
• 7. Claiming significant influence from the % alone (or denying it despite strong qualitative facts). The presumption is rebuttable both ways; argue facts.
• 8. Confusing statement geographies: IFRS 18 P&L categories (investment income → investing) vs IAS 7 cash flow classes (trading purchases → operating). Different statements, different answers.
• 9. No calculation shown under a journal entry. The sample solution brackets the arithmetic under every entry, do the same; it protects partial credit.

8. If the Facts Flipped: Counterfactual Drills

Exam cases will not be BEV. These three drills reuse BEV's numbers with ONE fact changed, work each cold, then check. They test whether you can re-walk the tree, not just replay the memorized answer.

Drill 1: CDS without the election

Flip: the case never mentions an irrevocable election (still not held for trading). Re-classify and redo the year-end.

Drill 2: Cutting Edge with the presumption rebutted

Flip: still 23.5%, but the supplier relationship is not material, BEV has no board seat, no policy participation, and no information access; the shares sit in BEV's trading portfolio. Re-classify and redo everything.

Drill 3: CEU held long-term with the election

Flip: CEU is not in the trading portfolio; management elects OCI at acquisition to keep volatility out of EPS. Redo all three entries.

9. Scenario Audit Checklist (run before submitting)

• Did I state IFRS vs ASPE and why (public vs private)?
• Did I compute and state the ownership % for every equity investment?
• Did I walk the full tree per investment, financial asset → strategic? → SPPI → held for trading? → election?, citing one case fact per branch?
• Transaction costs: did each land correctly (expense vs capitalize), with the rule named?
• Dividends: total × % or per-share × shares? And did each land correctly (NI vs investment reduction)?
• Year-end: did I remeasure the right investments (FVPL, OCI election) and leave the associate alone?
• Are all FV adjustments computed against carrying amount, not the naive price change?
• Table 1: informative account names (“Investment in Associate,” “Equity Investment: OCI Election,” “FVPL Investment”)?
• Table 2: every income amount in the right IFRS 18 category (investing for all Week 7 investment income), OCI shown separately?
• Did I show the arithmetic under every journal entry?

10. Self-Test: Reproduce These Cold

BEV tests only the three equity investments, there is no AR impairment in the Week 7 PBL. But the ECL provision matrix is squarely on the Week 7 checklist and can appear on the midterm, so keep this playbook exam-ready. It is parked here so the BEV walk-through above stays clean.

Playbook: AR impairment: the ECL provision matrix

• Triggers: an aging schedule; historical loss rates by bucket; a forward-looking economic statement (“regional employer closing,” “credit conditions expected to deteriorate 10%”).
• Method: (1) group receivables by credit risk; (2) historical loss rate per bucket = losses ÷ bucket balance; (3) adjust rates for the forward-looking factor, on the UNROUNDED rate (2.8235% × 1.10 = 3.11%); (4) required allowance = Σ (bucket balance × adjusted rate); (5) top up the existing allowance to the required balance.

Source: Week 7 PBL “Birds-Eye View Inc.” and posted sample solution (© 2026 Donna Psutka, AFM 291); IAS 32, IAS 28, IFRS 9, IAS 7/IFRS 18. All figures re-verified against the sample solution.