(Financial Accounting &

Reporting 1A)
LECTURE AID

2017

FAR PART 1A: Zeus Vernon B. Millan

 INVESTMENTS
Overview on the topic:
Chapter Title Sub-topics___
9 Investments –Part 1 Investments in equity securities

10 Investments –Part 2 Investments in debt securities

11 Investments–Part 3 Other long-term investments

Related standards:
• PFRS 9: Financial Instruments
• PFRS 13: Fair Value Measurement
• PFRS 7: Financial Instruments: Disclosures
• PAS 32: Financial Instruments: Presentation
FAR PART 1A: Zeus Vernon B. Millan
Chapter 9 Investments (Part 1)
Learning Objectives

• Identify financial assets and financial

liabilities.
• Know the classification of financial
assets, their initial measurement and
subsequent measurement.
• Explain how fair value is measured.
• Accounting for investments in equity
securities.
FAR PART 1A: Zeus Vernon B. Millan
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.
FAR PART 1A: Zeus Vernon B. Millan
Financial assets
A financial asset is any asset that is:
a. Cash;
b. Equity instrument of another entity;
c. Contractual right to receive cash or another financial
asset or to exchange financial assets or financial
liabilities with another entity under conditions that are
potentially favorable to the entity

FAR PART 1A: Zeus Vernon B. Millan

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 assets
or financial liabilities with another entity under
conditions that are potentially unfavorable to the
entity.

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Initial recognition and Classification
• Financial assets are recognized only when the entity
becomes a party to the contractual provisions of the
instrument.

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Basis of classification

1. The entity’s business model for managing the financial assets;

and
2. The contractual cash flow characteristics of the financial asset.

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FAR PART 1A: Zeus Vernon B. Millan
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.

FAR PART 1A: Zeus Vernon B. Millan

Business models

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Business models

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Business models

FAR PART 1A: Zeus Vernon B. Millan

Business models

FAR PART 1A: Zeus Vernon B. Millan

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.

FAR PART 1A: Zeus Vernon B. Millan

 Fair value hierarchy
Level 1 Observable inputs that reflect quoted
prices for identical assets or liabilities in Most reliable
active markets.

Level 2 Inputs other than quoted prices included

in Level 1 that are observable for the
asset or liability either directly or through
corroboration with observable data.

Level 3 Unobservable inputs (for example, an Least reliable

entity’s own data or assumptions).

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FAR PART 1A: Zeus Vernon B. Millan
 CLASSROOM
DISCUSSIONS &
COMPUTATIONS
PROBLEM 9-2: THEORY & COMPUTATIONAL

FAR PART 1A: Zeus Vernon B. Millan

 QUESTIONS????
 REACTIONS!!!!!

FAR PART 1A: Zeus Vernon B. Millan

 SEATWORK
(PROBLEM 9-4: CLASSROOM ACTIVITIES)

FAR PART 1A: Zeus Vernon B. Millan