CHAPTER 22: Financial Assets at Fair Value instrument, or an equity instrument of another

entity.
Investments- are assets held by an entity for the
accretion of wealth through distribution such as Examples:
interest, royalties, dividends and rentals, for capital
 Cash
appreciation or for other benefits to the investing
entity.  Deposit od Cash
 Trade Accounts Receivable
Purposes of Investments  Notes Receivable
 Accretion of Wealth  Loans Receivable
 Capital Appreciation  Bonds Receivable
 Ownership Control Not Considered as Financial Assets:
 Meeting Business Requirements
 Protection  Intangibles
 Physical Assets
Examples  Prepaid Expenses
 FA@FVPL or Trading Securities  Leased Assets
 FA@FVOCI Classifications of Financial Assets
 Investment in nontrading equity securities
 Investment in Bonds or FAAC  FA @ FVPL (equity sec and debt sec)
 Investment in Assoc  FA @ FVOCI (equity sec and debt sec)
 Investment in Subsidiary  FAAC (debt sec only)
 Investment in Property - Such classification depends on the business
model which maybe
 Investment in Fund
o To hold investments in order to
 Investment in Joint Venture
realize fair value changes
Classification o To hold investments in order to
collect contractual cash flows.
 Current- Readily realizable and intended to
be held for not more than one year like Equity Security- encompasses any instrument
trading securities representing ownership shares and rights, warrants
 Noncurrent- residual definition (other than or options to acquire or dispose of ownership at
current investments or intended for more fixed or determinable price.
than a year)
- Ownership interest in an entity
Financial Instrument (PFRS 9)- any contract that - Does not include redeemable preference
gives rise to financial asset to one entity a financial shares, treasury shares, and convertible
liability or equity instrument to another entity. debt.
Characteristics Debt Security- any security that represents a
creditor relationship with an entity. Has maturity
 There must be a contract. date and value.
 At least 2 parties involved
 Gives rise to financial asset to one entity Ex.
a financial liability or equity instrument - Corporate bond
to another entity. - Treasury Bills
Financial Asset- any asset that is cash, contractual - Gov Securities
right to receive cash from another entity, potentially - Commercial Papers
favorable contractual right to exchange financial
 - Preference shares with mandatory - Normally classified as current assets
redemption date or are redeemable at the
Equity Investment @ FVOCI
option of the holder.
- An entity may make an irrevocable election to
present in OCI subsequent changes in fair value of
Initial Measurement (PFRS 9)
an investment in equity instrument that is not held
Financial Assets are initially measured at for trading.
fair value plus transaction costs EXCEPT
The amount recognize in OCI is not reclassified to
FVPL. FA @ FVPL are initially measured at
profit or loss under any circumstances.
fair value; transaction costs are expensed
immediately. If the equity sec is held for trading, present gain or
loss in OCI is not allowed.
Transaction costs do not include debt
premiums or discounts, financing costs, and
holding cost.
Debt Investments @ Amortized Cost
- The business model is to hold the financial
Subsequent Measurement asset in order to collect contractual cash
flows at specified date.
After initial recognition, an entity shall
- The contractual cash flows are solely
measure financial assets at
payments of principal and interest on
a) FVPL principal amount outstanding.
b) FVOCI
c) Amortized Cost
Debt Investments @ FVOCI
FA @ FVPL - The business model is to sell the financial
asset and collect contractual cash flows. In
- Financial Assets held for trading known as
this case, interest income is recognized
trading securities.
using effective interest method in amortized
- All other investments in quoted equity
cost measurement
instruments.
- The contractual cash flows are solely
- Irrevocably designated on initial recognition
payments of principal and interest on
as FVPL.
principal amount outstanding.
- All debt investments that don’t satisfy the
- On derecognition, the cumulative gains or
requirements of amortize cost and FVOCI.
loss in OCI will be reclassified to profit or
- If the investment in equity sec is for trading,
loss.
subsequent changes are always included
in profit or loss. Fair Value
Financial Asset held for Trading - Price that would be received to sell an asset
in an orderly transaction between market
- Acquired principally for selling or
participants at the measurement date.
repurchasing it in the near term
- Best evidence for this is the quoted price of
- On, initial recognition, part of
identical asset in an active market, quoted
portfolio with evidence of short term
price of similar asset in an active market,
profit taking.
and the quoted price of identical and similar
- A derivative, except for financial
asset in an inactive market.
guarantee contract or a designated
and an effective hedging instrument.
End of theory part, gain and loss is part of the
computation/ problem part. SEE PAGE 709
onwards in VALIX Vol 1 and also read PFRS 9
Financial Instruments in CFAS page 540.