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    ILLUSTRATION 3: Held-To-Maturity Investments: Date Interest Received Interest Income Amortization Present Value

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    ALMA MORENA
    Entity A acquired 5-year bonds for P957,876 and classified them as held-to-maturity investments. Interest of P50,000 was paid annually with an effective interest rate of 6%. The carrying amount was adjusted annually for amortization. By the final payment date, the carrying amount equaled the face value of P1,000,000. If the bonds were available-for-sale, an unrealized gain of P44,651 would have been recognized in net assets based on the fair value of P1,010,000. An entity assesses financial assets for impairment at each reporting date by comparing the carrying amount to present value of estimated future cash flows.

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    ILLUSTRATION 3: Held-To-Maturity Investments: Date Interest Received Interest Income Amortization Present Value

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    ALMA MORENA
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    Entity A acquired 5-year bonds for P957,876 and classified them as held-to-maturity investments. Interest of P50,000 was paid annually with an effective interest rate of 6%. The carrying amount was adjusted annually for amortization. By the final payment date, the carrying amount equaled the face value of P1,000,000. If the bonds were available-for-sale, an unrealized gain of P44,651 would have been recognized in net assets based on the fair value of P1,010,000. An entity assesses financial assets for impairment at each reporting date by comparing the carrying amount to present value of estimated future cash flows.

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    Entity A acquired 5-year bonds for P957,876 and classified them as held-to-maturity investments. Interest of P50,000 was paid annually with an effective interest rate of 6%. The carrying amount was adjusted annually for amortization. By the final payment date, the carrying amount equaled the face value of P1,000,000. If the bonds were available-for-sale, an unrealized gain of P44,651 would have been recognized in net assets based on the fair value of P1,010,000. An entity assesses financial assets for impairment at each reporting date by comparing the carrying amount to present value of estimated future cash flows.

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    ILLUSTRATION 3: Held-To-Maturity Investments: Date Interest Received Interest Income Amortization Present Value

    Uploaded by

    ALMA MORENA
    Entity A acquired 5-year bonds for P957,876 and classified them as held-to-maturity investments. Interest of P50,000 was paid annually with an effective interest rate of 6%. The carrying amount was adjusted annually for amortization. By the final payment date, the carrying amount equaled the face value of P1,000,000. If the bonds were available-for-sale, an unrealized gain of P44,651 would have been recognized in net assets based on the fair value of P1,010,000. An entity assesses financial assets for impairment at each reporting date by comparing the carrying amount to present value of estimated future cash flows.

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    ILLUSTRATION 3: Held-to-maturity investments

    On January 1, 20x1, Entity A acquires 5-year, 5%, P1,000,000 face amount bonds for
    P957,876 and classifies them as held-to-maturity investments. The issuer pays
    annual interest every December 31. The effective interest rate is 6%.

    1/1/x Investment in Bonds 957,876


    1 Cash in Bank – Local Currency, Bangko
    Sentral 957,876
    ng Pilipinas
    To recognize investment in bonds

    Amortization Table:
    Date Interest Interest Amortization Present value
    received income
    1/1/x1 957,876
    12/31/x1 50,000 57,473 7,473 965,349
    12/31/x2 50,000 57,921 7,921 973,270
    12/31/x3 50,000 58,396 8,396 981,666
    12/31/x4 50,000 58,900 8,900 990,566
    12/31/x5 50,000 59,434 9,434 1,000,000

    12/31/x Cash in Bank – Local Currency, Bangko Sentral


    50,000
    1 ng Pilipinas
    Investment in Bonds 7,473
    Investment Income 57,473
    To recognize interest income

    Variation: Available-for-sale Financial Assets


     Assume the bonds are classified as available-for-sale financial assets and the
    fair value of year-end is P1,010,000. The unrealized gain that is recognized in net
    assets would have been P44,651 (P1,010,000 fair value – 965,349 carrying
    amount adjusted for discount amortization). The same amount of interest income
    would be recognized.

    Impairment of Financial Assets


     An entity shall assess at the end of each reporting period whether there is any
    objective evidence that a financial asset or group of financial assets is impaired.
    If any such evidence exists, the entity shall measure the amount of loss as the
    difference between the carrying amount of the asset and the present value of
    estimated future cash flows discounted at the financial asset’s original effective
    interest rate. The carrying amount of the asset shall be reduced either directly or
    through the use of an allowance account. The amount of the loss shall be
    recognized in surplus or deficit.
     In case of Accounts Receivable, the Allowance for Impairment shall be provided
    in an amount based on collectability of receivable balances and evaluation of
    such factors as aging of accounts, collection experiences of the agency,
    expected loss experiences and identified doubtful accounts.

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