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Chapter 9 Investments Lecture

This document provides an overview of investments and related accounting concepts. It defines key terms like financial assets, financial liabilities, and financial instruments. It explains that financial assets are classified based on an entity's business model and the contractual cash flow characteristics of the asset. Equity instruments are generally measured at fair value, while debt instruments can be measured at amortized cost, fair value through other comprehensive income, or fair value through profit or loss. The document also discusses how fair value is measured, using either the principal market price or most advantageous market price, with adjustments made for transaction costs but not transport costs.

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25 views

Chapter 9 Investments Lecture

This document provides an overview of investments and related accounting concepts. It defines key terms like financial assets, financial liabilities, and financial instruments. It explains that financial assets are classified based on an entity's business model and the contractual cash flow characteristics of the asset. Equity instruments are generally measured at fair value, while debt instruments can be measured at amortized cost, fair value through other comprehensive income, or fair value through profit or loss. The document also discusses how fair value is measured, using either the principal market price or most advantageous market price, with adjustments made for transaction costs but not transport costs.

Uploaded by

santillan.arnaldo.duran
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PDF, TXT or read online on Scribd
You are on page 1/ 18

INVESTMENTS

Learning Objectives
• Identify financial assets and financial liabilities.

• State the classifications of financial assets and their initial


and subsequent measurements.

• Explain how fair value is measured.

• Account for investments in equity securities.


Financial instruments
• Financial instrument is “any contract that gives rise to a
financial asset of one entity and a financial liability or
equity instrument of another entity.” (PAS 32)
• Financial instruments include both financial assets and
financial liabilities.
• Financial instruments include equity instruments of
another entity but exclude an entity’s own equity
instruments. An entity’s own equity instruments are neither
assets nor liabilities, but rather equity.
Financial assets
A financial asset is any asset that is:

a. Cash;

b. Equity instrument of another entity; or


c. Contractual right to receive cash or another financial asset
or to exchange financial instruments with another entity
under conditions that are potentially favorable.
Financial liabilities
A financial liability is any liability that is:

a. a contractual obligation to deliver cash or another financial


asset to another entity; or

b. a contractual obligation to exchange financial instruments


with another entity under conditions that are potentially
unfavorable.
Initial recognition and Classification

• Financial assets are recognized only


when the entity becomes a party to the
contractual provisions of the instrument.
Basis of classification

Financial assets are classified based on:


1. the entity’s business model for managing the
financial assets; and
2. the contractual cash flow characteristics of the
financial asset.
Basis of classification
Equity vs. Debt instruments

• Only debt instruments can be classified under the


Amortized Cost or FVOCI (mandatory) measurement
categories.

• Equity instruments are measured at FVPL, unless the entity


makes an irrevocable election on initial recognition to
measure them at FVOCI.

• A debt instrument that is not measured at amortized cost or


at FVOCI is measured at FVPL.
Business models
Business models
Business models
Business models
Fair Value Measurement
• Fair value is “the price that would be received to sell an asset
or paid to transfer a liability in an orderly transaction between
market participants at the measurement date.” (PFRS 13)

• Fair value is based on the market price of the asset in a:


a. principal market; or
b. the most advantageous market (in the absence of a principal
market)

• The market price used in measuring fair value is not adjusted


for any transaction costs, but is adjusted for any transport
costs.
Formula
1. Assignment:
 PROBLEM 6 - FOR CLASSROOM DISCUSSION of Chapter 9 (for
submission November 18)

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