INVESTMENTS

FINANCIAL ASSETS
@ FAIR VALUE
INTERMEDIATE ACCOUNTING I
CHAPTER 15
Definition of Investments
• International Accounting Standards Board:
• “Investments are assets hold by an entity for the accretion
of wealth through distribution such as interest, royalties,
dividends and rentals, for capital appreciation or for other
benefits to the investing entity such as those obtained
through trading relationships”.

Assets not directly identified with the operating activities

of an entity and occupy only an auxiliary relationship to the
central revenue producing activities of the entity.
 PURPOSES of Investments
• For accretion of wealth or regular income through interest, dividends,
royalties and rentals.
• For capital appreciation as in the case of investments in land and real
estate held for appreciation and direct investments in gold, diamonds and
other precious commodities.
• For ownership control as in the case of investments in subsidiaries and
associates.
• For meeting business requirements as in the case of sinking fund,
preference share redemption fund, plant expansion fund and other
noncurrent fund.
• For protection as in the case of interest in life insurance contract in the
form of cash surrender value.
Examples of Investments
1. Trading securities or financial asset at fair value through profit or
loss.
2. Financial asset at fair value through other comprehensive income.
3. Investment in nontrading equity securities
4. Investment in bonds or financial asset at amortized cost
5. Investment in associate
6. Investment in subsidiary
7. Investment property
8. Investment in fund
9. Investment in joint venture
Statement Classification
• Current investments
• by their very nature readily realizable and are intended to be
held for not more than one year
• trading securities are normally classified as current assets
because these investments are expected to be realized within
twelve months after the end of reporting period.

• Noncurrent or long-term investments

• investments other than current investments.
• Investments intended to be held for more than one year or
are not expected to be realized within twelve months after
the end of the reporting period.
 Definition of Financial Asset
• A financial asset is any asset that is:
a. Cash
b. A contractual right to receive cash or another financial
asset from another entity.
c. A contractual right to exchange financial instrument with
another entity under conditions that are potentially
favorable.
d. An equity instrument of another entity.
 Example of Financial Assets
• Cash or currency is a financial asset because it represents the
medium of exchange and the basis on which all transactions are
measured and recognized in financial statements.
• A deposit of cash with a bank or similar financial institution is a
financial asset because it represents the contractual right of the
depositor to obtain cash from the bank or to draw a check against
the balance in favor of a creditor in payment of a financial liability.
• But gold bullion deposited in bank is not a financial asset because
although it is very precious the gold is a commodity.
• Financial assets representing a contractual right to receive cash in the
future include trade accounts receivable, notes receivable, and loans
receivable
Examples of Financial Asset
• In case of exchanges of financial instruments with another entity,
• conditions are potentially favorable when such exchanges will
result to gain or additional cash inflow to the entity.
• An example of a favorable condition is an option held by the
holder to purchase shares of another entity at less than market
price. (SHARE RIGHTS)
• conditions are unfavorable when such exchanges will result to
loss or additional cash outflow to the entity.
• Investments in shares or other equity instruments issued by
other entities, for example, trading securities, can be classified as
financial assets.
Not considered Financial Assets
• Physical assets, such as inventory, property, plant and equipment
• Intangible assets, such as patents and trademarks,
• Control of such physical and intangible assets creates an
opportunity to generate an inflow of cash or another financial
asset but it does not give rise to a present right to receive
cash or another financial assets.
• Prepaid expenses for which the future economic benefit is the
receipt of goods or services
• Leased assets because control of such assets does not give rise
to a present right to receive cash or another financial asset.
Classifications of Financial Assets
• Under PFRS 9, paragraph 4.1.1, financial assets are classified into
three namely:
1. Financial Assets at fair value through Include
profitboth
or loss
EQUITY
2. Financial Assets at fair value throughSECURITIES
other comprehensive
and DEBT
income SECURITIES
3. Financial assets at amortized cost
Include only DEBT SECURITIES
• The classification depends on the business model for managing
financial assets which may be:
a. To hold investments in order to realize fair value changes
b. To hold investments in order to collect contractual cash flows.
 Equity Security
• encompasses any instrument representing ownership shares and rights, warrants
or options to acquire or dispose of ownership shares at a fixed or determinable
price.
• Represents an ownership interest in an entity
• The owners of equity securities are legally known as shareholders.
• A share is the ownership interest or right of a shareholder in an entity. (share
certificate)
• This right pertains to the share in earnings, election of directors, subscription for
additional shares, and share in net assets upon liquidation.
• include ordinary share, preference share and rights and options to acquire
ownership shares.
• do not include redeemable preference share, treasury shares and convertible debt.
Debt Security
• any security that represents a creditor relationship with an
entity.
• has a maturity date and a maturity value.
• Examples include:
• corporate bonds,
• BSP treasury bills
• government securities,
• commercial papers
• preference share with mandatory redemption date or is
redeemable at the option of the holder.
 Initial Measurement of Financial Asset

• Under PFRS 9, paragraph B5.1.1,

• at initial recognition, an entity shall measure a financial asset
at fair value plus (in the case of financial asset not at fair
value through profit or loss) transaction costs that are directly
attributable to the acquisition of the financial asset.

• The fair value of a financial asset at initial recognition

• transaction price, meaning, the fair value of the consideration
given.
• A Financial Asset is recognized initially at FAIR VALUE
Initial Measurement (TRANSACTION COSTS)
• As a rule, transaction costs that are directly attributable to the
acquisition of the financial asset shall be capitalized as cost of the
financial asset.
• If the financial asset is held for trading or if the financial asset is
measured at fair value through profit or loss,
• transaction costs are expensed outright
• include fees and commissions paid to agents, advisers, brokers and
dealers, levies by regulatory agencies and securities exchanges, and
transfer taxes and duties.
• do not include debt premiums or discounts, financing costs and
internal administrative or holding costs
 Subsequent Measurement
• PFRS 9, paragraph 5.2.1 provides that after initial
recognition, an entity shall measures a financial asset at:
a. Fair value through profit or loss (FVPL)
b. Fair value through other comprehensive income
(FVOCI)
c. Amortized Cost
Financial Assets at Fair Value through
Profit or Loss
• The following financial assets shall be measured at “fair value through
profit or loss”.
1. Financial assets held for trading or popularly known as
“trading securities”.
2. All other investments in quoted equity instruments. 
3. Financial assets that are irrevocably designated on initial
recognition as at fair value through profit or loss.
4. All debt investments that do not satisfy the requirements for
measurement at amortized cost and at fair value through
other comprehensive income.
Financial Assets at Fair Value through
Profit or Loss
1. Financial assets held for trading or popularly known as “trading
securities”.
• These financial assets are measured at fair value through profit or
loss “by requirement,” meaning, required by the standard.

2. All other investments in quoted equity instruments.

• These financial assets are measured at fair value through profit or
loss “by consequence” in accordance with Application Guidance
B5.1.14 of PFRS 9.
Financial Assets at Fair Value through
Profit or Loss
3. Financial assets that are irrevocably designated on initial recognition as at
fair value through profit or loss.
• These financial assets are measured at fair value through profit or loss “by
irrevocable designation” or “by option”.
• This fair value option is applicable to investments in bonds and other debt
instruments which can be irrevocably designated as at fair value through
profit or loss even if the financial assets satisfy the amortized cost or fair
value through other comprehensive income measurements.
• the fair value option allowed in accordance with Paragraph 4.1.5 of PFRS 9.
4. All debt investments that do not satisfy the requirements for
measurement at amortized cost and at fair value through other
comprehensive income. 
• These financial assets are measured at fair value through profit or loss “by
default” in accordance with PFRS 9, paragraph 4.1.4.
 Financial Asset Held for Trading
• Appendix A of PFRS 9 provides that a financial asset is held for
trading if:
a. It is acquired principally for the purpose of selling or repurchasing it
in the near term.
b. On initial recognition, it is part of a portfolio of identified financial
assets that are managed together and for which there is evidence of
a recent actual pattern of short-term profit taking.
c. It is a derivative, except for a derivative that is a financial guarantee
contract or a designated and an effective hedging instrument.
• Trading securities are debt and equity securities that are purchased
with the intent of selling them in the “near term” or very soon.
• Trading securities are normally classified as current assets.
 Equity Investment at Fair Value
through OCI
• At initial recognition, PFRS 9, paragraph 5.7.5, provides that an entity may
make an irrevocable election to present in other comprehensive income
or OCI subsequent changes in fair value of an investment in equity
instrument that is not held for trading.
• This irrevocable approach is designed to impose discipline in accounting for
nontrading equity investment.
• The amount recognized in other comprehensive income is not reclassified
to profit or loss under any circumstances.
• On derecognition, the amount may be transferred to equity or retained
earnings.
• If the investment in equity instrument is held for trading, subsequent
changes in fair value are always included in profit or loss.
 Debt Investment at Amortized
Cost
• PFRS 9, paragraph 4.1.2, provides that a financial asset shall
be measured at amortized cost if both of the following
conditions are met:
a. The business model is to hold the financial asset in order to
collect contractual cash flows on specified date.
b. The contractual cash flows are solely payments of principal
and interest on the principal amount outstanding.
 Debt Investment at Fair Value
through OCI
• PFRS 9, paragraph 4.1.2A, provides that a financial asset shall be
measured at fair value through other comprehensive income if both of
the following conditions are met:
a. The business model is achieved both by collecting contractual cash
flows and by selling financial asset.
b. The contractual cash flows are solely payments of principal and the
interest on the principal outstanding.
• Interest income is recognized using the effective interest method as in
amortized cost measurement.
• On derecognition, the cumulative gain and loss recognized in other
comprehensive income shall be reclassified to profit or loss.
 SUMMARY OF MEASUREMENT RULES
Measurement of Equity Investments
1. Held for trading – at fair value through profit or loss
2. Not held for trading – as a rule, at fair value through profit or loss
3. Not held for trading – at fair value through other comprehensive
income by irrevocable election
4. All other investments in quoted equity instruments – at fair value
through profit or loss
5. Investments in unquoted equity instruments – at cost
6. Investments of 20% to 50% - equity method of accounting
7. Investments of more than 50% - consolidation method
 SUMMARY OF MEASUREMENT RULES
Measurement of Debt Investments
1. Held for trading – at fair value through profit or loss
2. Held for collection of contractual cash flows – at amortized cost
3. Held for collection of contractual cash flows – at fair value through
profit or loss by irrevocable designation or fair value option
4. Held for collection of contractual cash flows and for sale of the
financial asset – at fair value through other comprehensive income
5. Held for collection of contractual cash flows and for sale of the
financial asset – at fair value through profit or loss by irrevocable
designation or fair value option
Fair Value (Appendix A of PFRS 9 in conjunction with PFRS 15)
• Fair Value of an asset 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.
• Best evidence (in descending hierarchy)
1. Quoted Price of identical asset in an active market
2. Quoted Price of similar asset in an active market
3. Quoted Price of identical and similar asset in an inactive market
• An active market is a market in which transactions takes place with sufficient
regularity and volume to provide pricing information on an ongoing basis
• The buyer and seller who are the market participants must be independent,
knowledgeable and willing, meaning not forced or not compelled to enter
into a transaction.
 Quoted Price
• the fair value of securities is the quoted price in the securities market, for
example, the Philippine Stock Exchange.
• If the quoted price pertains to a share or equity security, it means pesos per
share.
• If the investment in 10,000 shares of an entity costing P800,000 is
quoted at 90, the market value is P900,000 (10,000 shares * P90)

• If the quoted price pertains to a bond or debt security, it means, percent of

the face value of the bond.
• If the investment in bond with face amount of P2,000,000 costing
P1,700,000 is quoted at 90, the market value is P1,800,000 (P2,000,000
* 90%)
 Gain and Loss – Financial Asset
at Fair Value
• Under PFRS 9, paragraph 5.7.1, gains and losses on financial assets
measured at fair value shall be presented in profit or loss except:
a. When the financial asset is an investment in nontrading equity
instrument and the entity has irrevocably elected to present
unrealized gain or loss in other comprehensive income.
b. When the financial asset is a debt investment that is measured at fair
value through other comprehensive income.
• Unrealized gains and losses on financial assets held for trading and other
financial assets measured at fair value are reported in the income
statement.
 Unrealized Gains and Losses
• Unrealized gains and losses arise from investments that are reported
at fair value.
• In determining fair value, no deduction is made for transaction costs
that may be incurred on disposal of the financial asset.
• If the fair value is higher than the carrying amount, the difference is
unrealized gain.
• If the fair value is lower than the carrying amount, the difference is
unrealized loss.
• REALIZED gains and losses
• Gains and losses that result from actually selling the securities
 Gain and Loss
Financial assets at Amortized Cost
• Unrralized gain and loss are not recognized because such
investments are not reported at fair value.
• PFRS 9, paragraph 5.7.2 provides
• that gain or loss on financial asset at amortized cost shall
be recognized in profit or loss when the financial assets
are derecognized, sold, impaired or reclassified, and
through the amortization process.
 Illustration – Trading Securities
• On January 1, 2019, an entity purchased marketable equity securities for P5,000,000.
The equity securities qualify as financial assets held for trading. The entity also paid P
50,000 as commission to the broker. Outright expense
Trading securities 5,000,000
FINANCIAL because the investment
ASSET -Commission expense 50,000 is held for trading
FVPL Cash 5, 050,000
  To record purchase
• On December 31, 2019, the trading securities have a fair value of P6,000,000.
  Trading securities 1,000,000
Unrealized gain – TS 1,000,000
To record increase in fair value 6,000,000 – 5,000,000

 The unrealized gain is classified in the income statement as other income. 

On December 31, 2019, the statement of financial position will report the trading
securities at fair value of P 6, 000, 000 with a disclosure of the cost of P5, 000,000.
Illustration – Trading Securities
• On December 31, 2020, the trading securities have a fair value of
P4,500,000.  
Unrealized loss – TS 1,500,000
Trading securities 1,500,000
To record decrease in fair value 4,500,000 – 6,000,000
 
• The unrealized loss is reported in the income statement as other
expense.
• In the December 31, 2020 statement of financial position, the trading
securities will be carried at P4, 500,000, with disclosure of the cost of
P5, 000,000.
Illustration – Trading Securities
• On December 31, 2021, the trading securities are sold for P5,200,000.
Cash 5, 200,000
Trading securities 4, 500,000
Gain on sale of trading securities 700,000
  To record sale of investment

• PFRS 9, paragraph 3.2.12, provides that on derecognition of a financial

asset “the difference between the carrying amount and the consideration
received, including any new asset obtained less any new liability assumed,
shall be recognized in profit or loss.
• On disposal of a financial asset, the difference between the consideration
received and the carrying amount is recognized as gain or loss on disposal
to be reported in the income statement.
 On January 1,
2019, an entity TRADING SECURITIES COST MARKET GAIN/(LOSS)
acquired trading ABC Preference Shares 200,000 150,000 ( 50,000)
securities with the XYZ Ordinary Shares 800,000 950,000 150,000
following market RST Ordinary Shares 1,000,000 1,100,000 100,000
value on MNO Bonds 3,000,000 2,500,000 ( 500,000)
December 31, 5,000,000 4,700,000 ( 300,000)
2019. NET DECREASE
OFFSETTING permitted
Jan 1 Financial Assets – FVPL 5,000,000 by the standard
Cash 5,000,000 On December 31, 2019, the statement
To record acquisition of financial position will report
Financial Assets at Fair Value through
Profit or Loss at P4, 700, 000.
Dec 31 Unrealized Loss – TS 300,000 However, the notes to financial
Financial Assets – FVPL 300,000
statements shall disclose the
To record net decrease in market value
individual securities with their
corresponding carrying amount and
market value.
 On January 1,
On2019,
Decemberan 31,entity
2020, TRADING SECURITIES
TRADING SECURITIES COST
COST MARKET GAIN/(LOSS)
MARKET GAIN/(LOSS)
acquired
the remaining trading
trading
ABCOrdinary
XYZ Preference Shares
Shares 200,000
950,000 150,000 ( 50,000
1,000,000 50,000)
securitieshave
securities with the the
XYZ Ordinary Shares
RST Ordinary Shares 800,000
1,100,000 950,000 150,000
1,500,000 400,000
following market RST Ordinary Shares
MNO Bonds
1,000,000
2,500,000
1,100,000 100,000
2,400,000 ( 100,000)
following carrying amount
value on MNO Bonds 3,000,000
4,550,000
2,500,000 ( 500,000)
4,900,000
and market value:
December 31, 5,000,000 4,700,000 (350,000
300,000)
2019. NET INCREASE
Jan 15 Cash 80,000
Loss on Sale of FAFVPL 70,000 On January 15, 2019, the ABC
Financial Assets – FVPL 150,000 preference share is sold for
To record sale of ABC Preference shares P80,000.
Dec 31 Financial Assets – FVPL 350,000 On December 31, 2020 statement of
Unrealized Gain – TS 350,000 financial position will report Financial
To record net increase in market value Assets at Fair Value through Profit or
Loss at P4, 900, 000.
Equity Investment at Other Comprehensive Income (OCI)

• At initial recognition, an entity may make an irrevocable election to present in other

comprehensive income subsequent changes in value of an investment in nontrading
equity instrument.
• On January 1, 2019, equity purchased marketable equity securities for P1,000,000. The
CAPITALIZED
entity paid commission and taxes of P100,000.
• The equity securities do not qualify as financial asset held for trading. The entity made an
irrevocable election to present unrealized gains and losses in other comprehensive
income. 
Financial Asset - FVOCI 1, 100, 000
Cash 1, 100, 000
To record purchase
• A financial asset measured at fair value through other comprehensive income shall be
recognized initially at fair value plus transaction costs directly attributable to be
acquisition.
Equity Investment at Other Comprehensive Income (OCI)
On December 31, 2019, the securities have a market • The unrealized gain is presented as
value of P1, 300, 000. component of other comprehensive
Dec 31 Financial Assets – FVOCI 200,000 income in the 2019 statement of
Unrealized Gain – OCI 200,000 comprehensive income.
To record increase in market value • The financial asset – FVOCI on
December 31, 2019 is carried at the
market value of P1,300,000, with
On December 31, 2020, the securities have a market disclosure of the cost of P1,100,000.
value of P1, 600, 000. • The financial asset – FVOCI is
Dec 31 Financial Assets – FVOCI 300,000 normally classified as noncurrent
Unrealized Gain – OCI 300,000 asset.
To record increase in market value
The financial asset – FVOCI on December 31, 2020 P300,000 will be reported in the 2020 statement
is carried at the market value of P1,600,000, and of comprehensive income.
The total amount of P500,000 will appear in the
the total unrealized gain is P500,000.
statement of changes in equity. (RESERVES)
 Sale of Equity Investments
• On July 1, 2021 the securities are sold for P2,000,000.
Cash 2, 000, 000
Financial Asset - FVOCI 1, 600, 000
Retained Earnings 400, 000
To record sale of securities
• PFRS 9 paragraph 5.7.1, gain or loss on disposal of equity investment measured at fair
value through other comprehensive income is recognized in retained earnings.
• The cumulative gain or loss previously recognized in other comprehensive income is
transferred to retained earnings.
• The cumulative unrealized gain of P500, 000 is transferred to retained earnings. 
Unrealized gain – OCI 500, 000
Retained earnings 500, 000
To record transfer of unrealized-gain
Equity Investment at FV
through OCI
• recognized initially at fair value plus transaction costs directly attributable to
the acquisition.
• Change in fair value, unrealized gain or loss is presented as component of
other comprehensive income (Current Period)
• Cumulative unrealized gain or loss is shown in the statement of changes in
equity and component of Reserves (Statement of Financial Position)
• On derecognition, gain or loss on disposal of equity investment measured at
fair value through other comprehensive income is recognized in retained
earnings.
• On derecognition, cumulative gain or loss previously recognized in other
comprehensive income is transferred to retained earnings.
• Another illustration Jan 1 Financial Assets – FVOCI 2,000,000
• On January 1, 2019 an entity purchased Cash 2,000,000
marketable equity securities for P2, To record acquisition
Dec 31 Unrealized Loss – OCI 200,000
000, 000. The securities do not qualify
as financial asset held for trading. The Financial Assets – FVOCI 200,000
entity elected to present changes in fair 2020 To record decrease in market value
value in other comprehensive income.
Dec 31 Unrealized Loss – OCI 500,000
• On December 31, 2019, the securities Financial Assets – FVOCI 500,000
have a market value of P1,800,000. To record decrease in market value
• On December 31, 2020, the securities 2021
have a market value of P1,300,000. Jul 1 Cash 1,200,000
• The total unrealized loss is P700,000 Retained Earnings 100,000
Financial Assets – FVOCI 1,300,000
• The financial asset – FVOCI is carried
To record sale
at market value of P1,300,000
• On July 1, 2021, the securities are sold Jul 1 Retained Earnings 700,000
for P1, 200, 000. Unrealized Loss – OCI 700,000
To record transfer
• On January 1, 2019, an entity Financial Asset @ FVOCI COST MARKET GAIN/(LOSS)
purchased marketable equity Security A 1,000,000 1,100,000 100,000
securities not qualifying as Security B 2,000,000 2,700,000 700,000
financial asset held for trading. Security C 3,000,000 2,800,000 ( 200,000)
6,000,000 6,600,000 600,000
• The entity elected to present
changes in fair value as Dec 31 Financial Assets – FVOCI 600,000
component of OCI. On Unrealized Gain – OCI 600,000
December 31, 2019, the To record increase in market value
securities have the following 2020
cost and market value: Jul 1 Cash 1,400,000
• On July 1, 2020, Security A was Retained Earnings 300,000
sold for P1, 400, 000. Financial Assets – FVOCI 1,100,000
To record sale
Jul 1 Unrealized Gain – OCI 100,000
Retained Earnings 100,000
To record transfer
• On December 31, 2020, the Financial Asset @ FVOCI CarryingAmount MARKET GAIN/(LOSS)
remaining securities have the Security B 2,700,000 3,500,000 800,000
following carrying amount and Security C 2,800,000 2,750,000 ( 50,000)
market value: 5,500,000 6,250,000 750,000
• Computation of Cumulative
Unrealized Gain / Loss Dec 31 Financial Assets – FVOCI 750,000
Unrealized Gain – OCI 750,000
Unrealized Gain – 12/31/19 600,000 To record increase in market value
Unrealized Gain – sale of security A (100,000)
Adjusted Balance 500,000
Unrealized Gain in 2020 750,000
Unrealized Gain – 12/31/20 1,250,000 Security B 2,000,000
Security C 3,000,000
The cumulative unrealized gain is always Total Original Cost 5,000,000
the difference between the original cost Market Value – Dec 31, 2020 6,250,000
and the current market value. Cumulative Unrealized Gain – Dec 31, 2020 1,250,000
Impairment – Equity
Investments at Fair Value
• For financial assets measured at fair value, all gains and losses are
either presented in profit or loss or in other comprehensive income
depending on whether the election to present gains and losses on
equity investments in other comprehensive income is taken or not.
• not necessary to assess financial assets measured at fair value for
impairment.
• Under PFRS 9, there is no more impairment loss on financial asset
measured at fair value, whether through profit or loss, or through
other comprehensive income.
Impairment – Debt investments
• Under PFRS 9, paragraph 5.5.1, provides that an entity shall recognize
expected credit loss on:
a. Debt investment measured at amortized cost.
b. Debt investment measured at fair value through other
comprehensive income
• PFRS 9 provides that an entity shall measure the loss allowance for a
financial instrument at an amount equal to the lifetime expected
credit loss if the credit risk on that financial instrument has increased
significantly since initial recognition.
Impairment – Debt investments
• Credit Loss is the present value of all cash shortfalls.
• Expected credit loss is an estimate of credit loss over the life of the
financial instrument.
• The amount of impairment loss can be measured as the difference
between the carrying amount and the present value of estimated
future cash flows discounted at the 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 profit or loss.
Answer
Straight Problems (1,4,5,6)
Multiple Choice Problems (8-15)
END…
Financial Instruments
• PAS 32
• any contract that gives rise to financial asset of one entity
and a financial liability or an equity instrument of
another entity.
• encompasses a financial asset, a financial liability and an
equity instrument.
Financial Instruments
• Characteristic:
• There must be a contract.
• There are at least two parties to the contract.
• The contract shall give rise to a financial asset of one party
and financial liability or equity instrument of another
party.
Definition of Financial Asset
• A financial asset is any asset that is:
a. Cash
b. A contractual right to receive cash or another financial
asset from another entity.
c. A contractual right to exchange financial instrument with
another entity under conditions that are potentially
favorable.
d. An equity instrument of another entity.
Classifications of Financial Assets
• Under PFRS 9, paragraph 4.1.1, financial assets are classified into
three namely:
1. Financial Assets at fair value through profit or loss
2. Financial Assets at fair value throughInclude bothcomprehensive
other EQUITY SECURITIES
income and DEBT SECURITIES
3. Financial assets at amortized cost
Include only DEBT SECURITIES
• The classification depends on the business model for managing
financial assets which may be:
a. To hold investments in order to realize fair value changes
b. To hold investments in order to collect contractual cash flows.
Equity Security
• encompasses any instrument representing ownership shares
and right, warrants or options to acquire or dispose of
ownership shares at a fixed or determinable price.
• Represents an ownership interest in an entity
• The owners of equity securities are legally known as
shareholders.
• include ordinary share, preference share and rights and
options to acquire ownership shares.
Debt Security
• any security that represents a creditor relationship with an
entity.
• has a maturity date and a maturity value.
• Examples include:
• corporate bonds, BSP treasury bills,
• government securities, commercial papers
• preference share with mandatory redemption date or is
redeemable at the option of the holder.
Initial Measurement of Financial Asset
• Under PFRS 9, paragraph B5.1.1,
• at initial recognition, an entity shall measure a financial asset
at fair value plus (in the case of financial asset not at fair
value through profit or loss) transaction costs that are directly
attributable to the acquisition of the financial asset.
• The fair value of a financial asset at initial recognition
• transaction price, meaning, the fair value of the consideration
given.
• A Financial Asset is recognized initially at FAIR VALUE
Initial Measurement (TRANSACTION COSTS)
• As a rule, transaction costs that are directly attributable to the
acquisition of the financial asset shall be capitalized as cost of the
financial asset.
• include fees and commissions paid to agents, advisers, brokers and
dealers, levies by regulatory agencies and securities exchanges, and
transfer taxes and duties.
• do not include debt premiums or discounts, financing costs and
internal administrative or holding costs
• If the financial asset is held for trading or if the financial asset is
measured at fair value through profit or loss,
• transaction costs are expensed outright.
Subsequent Measurement
• PFRS 9, paragraph 5.2.1 provides that after initial
recognition, an entity shall measures a financial asset at:
a. Fair value through profit or loss (FVPL)
b. Fair value through other comprehensive income
(FVOCI)
c. Amortized Cost