Financial Asset at Fair Value – Equity Securities 3.

Held for collection of contractual cash flows - @ FVPL by irrevocable

PFRS 9, PAS 32, PAS 39 designation or fair value option
4. Held for collection of contractual cash flows and for sale of the financial
Recognition Principles: assets - @ FVOCI
5. Held for collection of contractual cash flows and for sale of the financial
Financial assets that represents a contractual right to receive cash or other assets - @ FVOCI by irrevocable designation or fair value option
financial assets in an exchange that is favorable.
Examples: Accounting Procedure:
- Cash - Cash Surrender Value
- Accounts Receivable - Equity Instruments a. The investment is initially recognized at cost.
- Notes Receivable - Debt Instruments b. The carrying amount is increased by the investor’s share of the profit of the
- Loans investee and decreased by the investor’s share of the loss of the investee.
Non-financial assets: The profit or loss of the investee is recognized as investment income.
- Intangible assets - Inventory c. Distributions or dividends received from an equity investee reduce the
- Physical assets (PPE) - Prepayment carrying amount of the investment.
d. Note that the investment must be in ordinary shares. If the investment is in
Measurement: preference shares, the equity method is not appropriate because it is a
nonvoting equity. It may be accounted for as at FVPL or at FVOCI or at cost.
Initial Measurement e. The investor has significant influence over the investee – associate. Under
the equity method, the investment in ordinary shares should be described as
 Financial assets is recognized initially at fair value, directly attributable
investment in associate.
transaction costs are added to or deducted from the carrying value of those
f. The investment in associate accounted for using the equity method shall be
financial instruments that are not subsequently measured at fair value
classified as noncurrent asset.
through profit or loss.
Presentation and Disclosures:
Subsequent Measurement
 Investment – current or noncurrent assets
 Fair value through profit or loss ( FVPL)  Purposes of investment:
 Fair value through other comprehensive income ( FVOCI) 1. For accretion of wealth
 Amortized cost 2. For capital appreciation
Measurement of equity investments: 3. For ownership control
4. For meeting business requirements
1. Held for trading – @ FVPL 5. For Protection
2. Not held for trading – as a rule, @ FVPL  Classifications of financial assets:
3. Not held for trading – @ FVOCI by irrevocable election 1. Financial asset @ FVPL – both equity and debt securities
4. All other investments in quoted equity instruments - @ FVPL 2. Financial asset @ FVOCI – both equity and debt securities
5. Investments in unquoted equity instruments - @ cost 3. Financial asset @ amortized cost – debt security only
6. Investments of 20% to 50% - equity method  Equity Security – instruments representing an ownership interest in an
7. Investments of more than 50% - consolidation method entity. It includes ordinary shares, preference shares and rights or options to
Measurement of debt instruments: acquire ownership shares. It is legally known as shareholders.
 Debt Security – security that represents a creditor relationship with an entity.
1. Held for trading - @ FVPL
It has a maturity date and a maturity value.
2. Held for collection of contractual cash flows - @ amortized cost
 Fair value of an asset – is the price that would be received to sell an assets
in an orderly transaction between market participants at the measurement
date.
- Descending hierarchy – is the quoted price of identical assets in an
active market, the quoted price of similar asset in an active market
and the quoted price of identical and similar assets in an inactive
market.
- Active market – is a market in which transaction take place with
sufficient regularity and volume to provide pricing information on an
ongoing basis.
 Quoted price – fair value of securities is the quoted price in the securities
market (i.e. Philippine Stock Exchange)
- If the quoted price pertains to a share or equity security, it means
pesos per share
- If the quoted price pertains to a bond or debt security, it means
percent of the face amount of the bond