Chapter 15: Financial Asset at Fair Value

Reporting of loss accounts

Trading Securities (FVPL)
FVPL
At date of purchase:  Unrealized gain or loss—income statement
Trading Securities (cost) xxx (other expense)
Commission expense xxx  Gain or loss on disposal—income statement
Cash xxx FVOCI
 Unrealized gain or loss for the year—statement
Increase of FV at year-end: of comprehensive income
Trading Securities (carrying value – new FV)  Cumulative unrealized gain or loss—statements
Unrealized gain—TS xxx of changes in equity

Decrease of FV at year-end:
Unrealized loss—TS (carrying value – new FV)
Trading Securities xxx

Sale of trading securities:

Cash (at consideration) xxx
Trading Securities (CV) xxx
Gain on sale of TS xxx

Equity investment at fair value through OCI (FVOCI)

At date of purchase:
Financial asset—FVOCI (FV + transaction cost)
Cash xxx

Increase of FV at year-end:
Financial asset—FVOCI (carr. value – new FV)
Unrealized gain—OCI xxx

Decrease of FV at year-end:
Unrealized loss—OCI (carrying value – new FV)
Financial asset—FVOCI xxx

(1)Sale of trading securities:

Cash (at consideration) xxx
Financial asset—FVOCI xxx
Retained earnings xxx

(2)Transfer of prior unrealized gain/loss

Retained earnings xxx
Unrealized loss—OCI xxx

Unrealized gain—OCI xxx

Retained earnings xxx
Chapter 15: Financial Asset at Fair Value Shares received in lieu of cash dividends
Investment in shares xxx
Dividend income xxx
Sale of shares ***(amount depends whether the MV of the
share is available)
Dividend- Cash xxx Invmt. in shares xxx
on Invmt. in shares xxx Cash xxx
Dividend income xxx
GoSoI xxx (???) Cash received in lieu of share dividends
Ex- Cash xxx
dividend Invmt. in shares xxx As if approach
GoSoI xxx Cash xxx
Investment in shares (cost) xxx
Gain on investment xxx
Property dividends
Non-cash assets xxx BIR approach
Dividend income xxx Cash xxx
Dividend income xxx
or

Investment in shares xxx Share split

Dividend income xxx Memo: Received ___ new shares as a result of
a _for_ split of ____ original shares.

Liquidating dividends
Cash (or other accts) xxx Special assessments
Investment in shares xxx Investment in shares xxx
Cash xxx
or

Cash (or other accts) xxx Redemption of shares (esp. preference shares)
Investment in shares xxx Cash xxx
Dividend income xxx Investment in pref. shares xxx
Gain on investment
or

Cash (or other accts) xxx

SHARE RIGHTS
Investment in shares xxx
Gain in ROI xxx
Accounted for separately

Share dividends/stock dividends

Memo: Received ____ shares representing _%
share dividends of the ____ original
shares held. Shares now held, ____.

Allocation:
Based on number of shares (same class).
Based on market value (different class).

Investment in preference shares xxx

Investment in ordinary shares xxx
Effects on monitoring
 Share dividends (same class)—only no. of
shares. Add if average method, allocate if FIFO
method.
 Share dividends (diff. class)—only no. of shares,
total cost is allocated based off the market value.
 Share split—only no. of shares
 Share rights—only the total cost. Deduct if
average method, allocate if FIFO method.
Chapter 17: Investment in Associate  Equity method
o Is based on the economic relationship
 Intercorporate share investment between the investor and the investee
o The purchase of the equity shares of o The investor and investee are viewed as
one entity by another entity a single economic unit and one and the
o One entity investing in another entity same
through the acquisition of share capital o This method is applicable when the
o An entity may purchase enough shares investor has a significant influence over
to exert significant influence over the the investee
financial and operating policies of the o Wherein cash dividend is not an income
investee entity but a return or reduction of investment
 Significant influence  Accounting procedures
o Is the power to participate in the o Investment is recognized at cost
financial and operating policy decisions o Increased by the share of profit
of the investee but not control or joint Decreased by the share of loss
control over those policies o Dividends reduce the carrying amount of
o An investor is presumed to have investment
significant influence if the investor holds o Investment must be in ordinary shares
20% or more of the voting power of the Investment in preference shares will not
investee, directly or indirectly through use equity method and will be
subsidiaries, unless clearly accounted for as at FVPL or FVOCI
demonstrated that it is not the case. o If the investor has significant influence to
o Conversely, if the held voting power of the investee, the investee is called an
the investee is less than 20%, the associate (investment in associate)
investor does not have significant o Investment in associate accounted for
influence, unless such influence can be using equity method shall be classified
clearly demonstrated as noncurrent asset
 Evidences of significant influence
o Representation on the board of directors
Equity Method Journal Entries
o Participation in policy making process
o Material transactions between the Acquisition
investor and the investee Investment in associate xxx
o Interchange of material personnel Cash xxx
o Provision of essential technical
Share in income
information Investment in associate (at EI% of income or at stated)
 Potential voting rights Investment income xxx
o Potential voting rights is considered in
Receipt of share dividend
assessing whether an entity has Memo: Received ___ ordinary shares as __% share
significant influence and in the distribute dividend on ___ original shares. Shares now held, ___
of share in the profit or loss, provided shares.
that the said potential voting rights are
Share in net loss
currently exercisable or convertible Loss on investment (at EI% of loss or at stated)
 Loss of significant influence Investment income xxx
o An entity loses significant influence over
an investee when it loses the power to Receipt of cash dividend
Cash (at EI% of total dividends or at stated)
participate in the financial and operating Investment in associate xxx
policy decisions of the investee
o It can occur with or without change in
the absolute or relative ownership
interest
o The loss of significant influence could
also occur as a result of a contractual
agreement
 Excess of cost over carrying amount
o Happens when the investor pays more  Excess of net fair value over cost computation
or less for an investment than the Acquisition cost xxx
carrying amount of underlying assets CA of net assets acquired (xxx)
o If the investor pays more than the CA of Excess of cost over CA xxx
the net assets acquired, the difference is Excess attributable to A (xxx)
commonly known as “excess of cost Excess attributable to B (xxx)
over CA” and may be attributed to: Excess net FV over cost xxx
 Undervaluation of the investee’s
assets Excess of NFV over cost Journal Entries
 Goodwill
o It is difficult to determine which assets Acquisition
Investment in associate xxx
are undervalued. Cash xxx
o If the assets are fairly valued, the
excess is attributed to goodwill Share in income
o If the excess is attributable to Investment in associate (at EI% of income or at stated)
Investment income xxx
undervaluation of depreciable asset, it is
amortized over the remaining life of the Receipt of cash dividend
depreciable assets only. For land, a Cash (at EI% of total dividends or at stated)
non-depreciable asset, the excess Investment in associate xxx

amount is expensed when sold. To record amortization (based on useful life of asset in excess)
o If the excess is attributable to inventory, Investment income (excess ÷ useful life) xxx
the amount is expensed when the Investment in associate xxx
inventory is already sold.
To record amortization of inventory already sold
o If the excess is attributable to goodwill, it Investment income (full excess amount) xxx
is included in the CA of the investment Investment in associate xxx
and not amortized.
o The entire investment in associate To record the excess NFV as investment income
Investment in associate xxx
including the goodwill is tested for Investment income xxx
impairment at the end of each reporting
period.
o Acquisition cost xxx
CA of net assets acquired (xxx)  Investee with heavy losses
Excess of cost over CA xxx o If an investor’s share of losses of an
Undervaluation of DA (A x EI%) (xxx) associate equals or exceeds the
Remainder—Goodwill (xxx) carrying amount of an investment, the
Balance xxx investor discontinues recognizes its
share of further losses.
o The investment is reported at nil or zero
Excess of cost over carrying amount value
o CA of the investment in associate
To record amortization (based on useful life of asset in excess)
 Account balance
Investment income (UV ÷ useful life) xxx  Long-term receivables (w/o coll)
Investment in associate xxx  Loan and advances (w/o coll)
 Investment in preference shares
To record amortization of inventory already sold
Investment income (full excess amount) xxx
o Check page 439 for journal entries
Investment in associate xxx  Impairment loss
o If there is an indication, an impairment
To record the excess NFV as investment income
loss shall be recognized whenever the
Investment in associate xxx
Investment income xxx carrying amount of the investment in
associate exceeds recoverable amount.
o CA of investment > recoverable amount
o Recoverable amount higher between
FV less COD and VIU
Chapter 18: Investment in Associate o The investor is a wholly-owned
subsidiary of another entity
Upstream transactions o The investor’s D&E instruments are not
 Are sales of assets from an associate to the publicly traded
investor. o The investor didn’t and doesn’t have
 Associate (seller) → Investor (buyer) plans of filing FS with SEC
 E.g. selling of inventory or noncurrent asset to o The ultimate parent of the investor
the investor makes consolidated FS available for
 The unrealized profit from these transactions public use that comply with PFRS
must be eliminated in determining the investor’s
share in the profit or the loss of the associate Associate held for sale
 Computation:  The investment in associate classified as held
for sale shall be measured at lower of carrying
Net income for the year xxx amount and FV less COD
Unrealized profit (SP-Cost) (xxx)  LoCAFVCOD
Adjusted net income xxx
Investment of less than 20%
 If the sale is an inventory, unrealized gain will be  No significant influence and may be accounted
realized at resale. for as either of the two methods:
 If the sale is a depreciable asset, unrealized gain  Fair value method
will be periodically realized by dividing the o Applicable to FAs measured at FVPL or
unrealized gain over useful life. FVOCI
 Cost method
Downstream transactions o Applied with respect to investment in
 Are sales of assets from an investor to an unquoted equity instruments or
associate. nonmarketable equity investment
 Investor (seller) → Associate (buyer)  Under both methods, the investor will not have a
 Computation share in the profit or loss
 Investor and investee are independent from
Net income for the year xxx each other
Unrealized profit (SP-Cost) (xxx)  Dividends are already accounted for as dividend
Realized profit (UP/UL) xxx income.
Adjusted net income xxx
Dividend from pre-acquisition retained earnings
Discontinuance of equity method (change from equity)  There is no longer a distinction between pre- or
 An investor shall discontinue the use of the post-acquisition dividends
equity method from the date that it ceases to
have significant influence over an associate Investment in associate achieved in stages
 The investment shall be accounted for as  In a business combination achieved in stages,
follows: the acquirer shall remeasure the previously held
o FA-FVPL equity interest at fair value and recognize the
o FA-FVOCI resulting gain or loss in profit or loss.
o Nonmarketable investment at cost or  This is called the fair value approach and should
investment in unquoted equity be followed when an associate is acquired in
instrument stages

Measurement after loss of significant influence Fair value approach

 Any retained investment in associate shall be  The existing interest in the associate is
measured at fair value remeasured at the current fair value (FVPL and
 CA - FV = shall be included in profit or loss cost)
 The FV at the date of lost of significant influence  If existing interest is accounted for at FVOCI,
= (regarded as) the FV on initial recognition as a any priorly recorded unrealized gain will be
financial asset closed to retained earnings.
 Existing FV xxx
Equity method not applicable Addt’l inv. xxx
Total cost of investment
 An investment in associate shall not be for the initial application
accounted for using the equity method if the of the equity method xxx
investor is a parent that is exempt from  Total cost of investment
preparing consolidated financial statements or if for the initial application
all of the following apply: of the equity method xxx
CA-NA (xxx)
ECCA/ENFV xxx