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FINANCIAL  ACCOUNTING  AND  REPORTING      
Prepared by: Bernadette Adelaida M. Cope Investments - Overview

 
INVESTMENTS  
 
•   These  are  assets  not  directly  identified  with  the  operating  activities  of  an  entity  and  occupy  only  
an  auxiliary  or  secondary  relationship  to  the  main  revenue  producing  activity  of  the  entity.  
 
•   Point   of   view   of   the   INVESTOR   which   may   also   be   called   as   Shareholder   (equity   instruments),  
Bondholder  or  Creditor  (debt  instruments)  
 
•   Purposes  of  Investments  (why  do  we  invest?)  
1.   For   accretion   of   wealth   through   interest   (debt   instruments),   dividends   (equity  
instruments),  royalties  and  rentals  (investment  properties).  
 
2.   For  capital  appreciation  in  the  case  of  land,  artworks  and  other  precious  commodities  
 
3.   For  ownership  control  as  in  the  case  of  investments  in  associates  and  subsidiaries  
 
4.   For   meeting   business   requirement   as   in   the   case   of   sinking   fund,   preference   share  
redemption  fund,  plant  expansion  fund  and  other  non-­‐current  cash  funds.  
 
5.   For  protection  as  in  the  case  of  interest  in  life  insurance  in  the  form  of  cash  surrender  
value.  
 
•   Financial  statement  presentation  
Ø   Current  Asset  =  if  readily  realizable  and  are  intended  to  be  held  for  one  (1)  year  or  less  
Ø   Non-­‐current  Asset  =  if  intended  to  be  held  for  more  than  1  year  from  report  date  
 
•   Some  investments  may  be  considered  as  FINANCIAL  ASSETS  (covered  by  PFRS  9)  
Ø   Financial  assets  at  fair  value  through  profit  and  loss  (FA@FV  thru  P/L  or  FVPL)  =  equity  
and  debt  instruments  
Ø   Financial  assets  at  fair  value  through  other  comprehensive  income  (FV@  FV  thru  OCI  or  
FVOCI)  =  equity  and  debt  instruments  
Ø   Financial  assets  at  amortized  cost  (FA  @  AC)  =  debt  instruments  only  
 
  COMPOSITION  
 
1.   EQUITY  INSTRUMENTS  
ü   these   are   represented   by   ownership   of   shares   and   rights,   warrants   or   options   to  
acquire  or  dispose  ownership  shares.  
ü   normally  includes  ORDINARY  and  PREFERENCE  shares  
ü   do  not  include  redeemable  preference  shares,  treasury  shares  and            convertible  
debt  instruments  
ü   investors  of  these  instruments  are  called  SHAREHOLDERS  
ü   these  include:                          
A.   FA  @  FV  through  P/L  
B.   FA  @  FV  through  OCI  
C.   Unquoted  equity  securities  
 2  
FINANCIAL  ACCOUNTING  AND  REPORTING      
Prepared by: Bernadette Adelaida M. Cope Investments - Overview

D.   Investment  in  Associates  

E.   Investment  in  Subsidiary  (to  be  discussed  in  Advanced  Accounting)  
 
2.   DEBT  INSTRUMENTS  
ü   These  are  represented  by  bonds,  treasury  bills,  government  securities,  commercial  
papers,  redeemable  preference  shares  
ü   These  have  maturity  dates  and  maturity  values  
ü   Investors  of  these  instruments  are  called  as  BONDHOLDERS  or  in  general  CREDITORS  
ü   These  include:  
A.   FA  @  FV  through  P/L  
B.   FA  @  FV  through  OCI  
C.   FA  @  AC  
 
3.   INVESTMENT  PROPERTIES  
ü   These  are  properties  held  by  an  owner  or  by  the  lessee  under  a  finance  lease  to  earn  
rentals  or  for  capital  appreciation  or  both  
ü   These  include:  
A.   Land  held  for  capital  appreciation  or  for  a  currently  undetermined  use  
B.   Building  leased  out  under  an  operating  lease  
 
4.   NON-­‐CURRENT  CASH  FUNDS  
ü   These  are  cash  funds  set  aside  for  non-­‐current  use  
ü   These  include  sinking  fund,  preference  share  redemption  fund,  plant  expansion  fund,  
cash  surrender  value  etc.  
 
5.   DERIVATIVES  
ü   Financial  instruments  that  derive  their  value  from  the  movement  in  commodity  price,  
foreign  exchange  rate,  interest  rate  of  an  underlying  asset  or  financial  instrument  
ü   It  is  an  executory  contract.      it  is  not  a  transaction  but  an  exchange  of  promises  about  
future  actions.  
ü   These  include:  
A.   Interest  rate  swap  
B.   Forward  contract  
C.   Futures  contract  
D.   Option  
 
 
  IMPAIRMENT  
Ø   No  impairment  loss  is  recognized  for  equity  investments  at  fair  value  
 
Ø   Impairment   loss   is   recognized   for   debt   investments   at   fair   value   through   OCI   and   those  
measured  at  amortized  cost  
 
 
 
 
 
 
 3  
FINANCIAL  ACCOUNTING  AND  REPORTING      
Prepared by: Bernadette Adelaida M. Cope Investments - Overview

 
FINANCIAL  ASSETS  (covered  under  PFRS  9)  
 
•   FINANCIAL  ASSETS  @  FAIR  VALUE  THROUGH  PROFIT  OR  LOSS  
Ø   Popularly  known  as  TRADING  SECURITIES  
Ø   Principally  acquired  for  the  purpose  of  selling  or  repurchasing  it  in  the  near  term  
Ø   It  includes  both  equity  and  debt  instruments  
Ø   INITIAL  VALUATION  (upon  acquisition)  
v   The  investment  is  recorded  at  Fair  Value  which  serves  as  its  acquisition  
cost  
v   All  transaction  costs  are  expensed  outright.    Examples  include:  
o   fees   and   commissions   paid   to   agents,   advisers,   brokers   and  
dealers  
o   levies  by  regulatory  agencies  and  security  exchanges  
o   transfer  taxes  and  duties  
SUBSEQUENT  VALUATION  (on  report  date)  
v   The  investment  is  valued  at  Fair  Value  
 
           
  Initial  Valuation   Subsequent  Valuation  
  (upon  acquisition)   (at  report  date)  
     
 
@  Fair  Value   @  Fair  Value  
 
 
 
  VARIANCE  
   
  Unrealized  gain  
  (loss)  
 
 
 
 
  Recognized  in  the  the  
  Income  statement  as  part  
  of  profit  and  loss  
 
 
 
•   FINANCIAL  ASSETS  @  FAIR  VALUE  THROUGH  OTHER  COMPREHENSIVE  INCOME  
Ø   It  includes  both  equity  and  debt  instruments  
Ø   INITIAL  VALUATION  (upon  acquisition)  
v   The   investment   is   recorded   at   Fair   Value   plus   transaction   cost   which  
serves  as  its  acquisition  cost  
 
SUBSEQUENT  VALUATION  (on  report  date)  
v   The  investment  is  valued  at  Fair  Value  
 4  
FINANCIAL  ACCOUNTING  AND  REPORTING      
Prepared by: Bernadette Adelaida M. Cope Investments - Overview

 
           
  Initial  Valuation   Subsequent  Valuation  
  (upon  acquisition)   (at  report  date)  
     
  @  Fair  Value  plus   @  Fair  Value  
  transaction  cost  
 
 
  VARIANCE  
   
  Unrealized  gain  
  (loss)  
 
 
 
 
 
 
  • The  change  in  the  unrealized  gain  (loss)  is  
  recognized  in  the  Statement  of    
  Comprehensive  income  as  part  of  other  
  comprehensive  income,    
   
  • the  cumulative  balance  is  seen  in  the  
 
statement  shareholders’  equity  
 
 
 
 
 
 
 
•   FINANCIAL  ASSETS  @  AMORTIZED  COST  
Ø   It  includes  ONLY  debt  instruments  
Ø   the  business  model  is  to  collect  contractual  cash  flows  solely  for  the  payment  of  principal  
and  interest.  
Ø   INITIAL  VALUATION  (upon  acquisition)  
v   The   investment   is   recorded   at   Fair   Value   plus   transaction   cost   which  
serves  as  its  acquisition  cost  
 
SUBSEQUENT  VALUATION  (on  report  date)  
v   The  investment  is  valued  at  Amortized  cost  
 
 5  
FINANCIAL  ACCOUNTING  AND  REPORTING      
Prepared by: Bernadette Adelaida M. Cope Investments - Overview

           
  Initial  Valuation   Subsequent  Valuation  
  (upon  acquisition)   (at  report  date)  
     
  @  Fair  Value  plus   @  Amortized  cost  
  transaction  cost  
 
 
  VARIANCE  
   
  Amortization  of  
  interest  income  
 
 
 
 
 
• The  amortization  is  recognized  in  the  
 
 
Income  Statement  as  part  of  profit  and  
  loss    
   
  • NO  recognition  of  unrealized  gain  (loss)  
   
 
SUMMARY  OF  TERMS  
 
FA  @  FV  thru  P/L   FA  @  FV  thru  OCI   FA  @  AC  
Equity  Securities  
•   Trading  securities      
•   Held  for  trading      
•   Not  held  for  trading   •   Not   held   for   trading   by    
  irrevocable  election    
•   All   other   QUOTED      
equity  securities          
Debt  Securities  
•   Trading  securities      
•   Held  for  trading      
•   Held   for   collection   of     •   Held   for   collection   of  
contractual   cash   flows     contractual  cash  flows  
by   irrevocable      
designation   or   fair      
value  option      
•   Held   for   collection   of   •   Held   for   collection   of    
contractual   cash   flows   contractual   cash   flows    
and   for   sale   by   and  for  sale    
irrevocable  designation          
 
 6  
FINANCIAL  ACCOUNTING  AND  REPORTING      
Prepared by: Bernadette Adelaida M. Cope Investments - Overview

Sample  Problem:  FINANCIAL  ASSET  AT  FAIR  VALUE  THROUGH  PROFIT  AND  LOSS  
 
JOURNAL(ENTRIES:
31-Dec-19
Unrealized*loss*-*P/L *** *30,000
Trading*securities*-*A*ordinary *** *30,000

Unrealized*loss*-*P/L *** *40,000

Trading*securities*-*B*ordinary *** *40,000

Trading*securities*-*C*preference *** *10,000

Unrealized*gain*-*P/L *** *10,000

30-Jun-20
Cash **140,000
Loss*on*sale *** *20,000
Trading*securities*-*B*ordinary **160,000
Trading(Securities(L(A(ordinary(
31-Dec-20
Upon*Acquisition 4,000*sh ** *330,000 Trading*securities*-*A*ordinary *** *20,000
Unrealized*gain*-*P/L *** *20,000
**** *30,000 Unrealized*loss 31-Dec-19
31-Dec-19 ** *300,000 Trading*securities*-*C*preference *** *50,000
Unrealized*gain*-*P/L *** *50,000
Unrealized*gain **** *20,000
31-Dec-20 4,000*x*80 ** *320,000 Carrying(value(of(investments((=(Fair(value(as(of(Dec(31,(2019
A*ordinary **300,000
B*ordinary **160,000
Trading(Securities(L(B(ordinary( C*preference **310,000
Total ((770,000
Upon*Acquisition 1,000*sh ** *200,000

**** *40,000 Unrealized*loss 31-Dec-19 Carrying(value(of(investments((=(Fair(value(as(of(Dec(31,(2020

31-Dec-19 ** *160,000 A*ordinary **320,000
C*preference **360,000
**160,000 Sale*of*the**investment 30-Jun-20 Total ((680,000
*********** *-
Effect(of(the(transactions(to(the(Income(statement
2019 2020
Trading(Securities(L(C(preference Unrealized*loss*-*A -*** *30,000 *** *20,000
Unrealized*loss*-*B -*** *40,000
Upon*Acquisition 2,000*sh ** *300,000 Unrealized*gain*-*C *** *10,000 *** *50,000
Loss*on*sale -*** *20,000
31-Dec-19***Unrealized*gain **** *10,000 Total L((( (60,000 ((( (50,000
31-Dec-19 ** *310,000 Decrease Increase
in*income in*income
Unrealized*gain **** *50,000
31-Dec-20 2,000*x*180 ** *360,000
 
 
 
 
 
 
 
 
 
 
 
 7  
FINANCIAL  ACCOUNTING  AND  REPORTING      
Prepared by: Bernadette Adelaida M. Cope Investments - Overview

JOURNAL(ENTRIES:
31-Dec-19
Unrealized*loss*-*P/L ***** *800,000
Trading*securities*-*Security*One ******* *800,000

Trading*securities*-*Security*Two ***** *300,000

Unrealized*gain*-*P/L ******* *300,000

Unrealized*loss*-*OCI ***** *100,000

FA*@*FV*thru*OCI*-*Security*Three ******* *100,000

FA*@*FV*thru*OCI*-*Security*Four ***** *500,000

Unrealized*gain*-*OCI ******* *500,000

30-Jun-20
Trading(Securities(O(Security(One Cash ** *1,000,000
Gain*on*sale** ******* *300,000
Upon*Acquisition **2,200,000 Trading*securities*-*Security*One ******* *700,000

*** *800,000 unrealized*loss 31-Dec-19 **The*difference*between*the*carrying*value*and*net*sales*proceeds

31-Dec-19 **1,400,000 *goes*directly*to* profit'or'loss *for* FVPL *securities
*** *700,000 sale*of*1/2 2020
Cash ** *1,300,000
**** *700,000 Retained*earnings** ********* *50,000
FA*@*FV*thru*OCI*-*Security*Four **** *1,250,000
31-Dec-20 unreal*gain **** *200,000
31-Dec-20 **** *900,000 **The*difference*between*the*carrying*value*and*net*sales*proceeds
*goes*directly*to* Retained'Eanings **for* FVOCI( securities

Trading(Securities(O(Security(Two Unrealized*gain*-*OCI ***** *250,000

Retained*earnings ******* *250,000
Upon*Acquisition **** *700,000
a*portion*of*the*unrealized*gain(loss)-OCI*is*transferred*to*retained*
unreal*gain **** *300,000 upon*disposal
31-Dec-19 **1,000,000
31-Dec-20
unreal*gain **** *100,000 Trading*securities*-*Security*One ***** *200,000
31-Dec-20 **1,100,000 Unrealized*gain*-*P/L ******* *200,000

Trading*securities*-*Security*Two ***** *100,000

FA(@(FV(thru(OCI(O(Security(Three Unrealized*gain*-*P/L ******* *100,000

Upon*Acquisition **1,600,000 FA*@*FV*thru*OCI*-*Security*Three ***** *100,000

Unrealized*gain*-*OCI ******* *100,000
*** *100,000 unrealized*loss
31-Dec-19 **1,500,000 Unrealized*loss*-*OCI ******* *50,000
FA*@*FV*thru*OCI*-*Security*Four ********* *50,000
unreal*gain **** *100,000
31-Dec-20 **1,600,000 Carrying(value(of(investments((=(Fair(value(as(of(Dec(31,(2019
Security*One ** *1,400,000
Security*Two ** *1,000,000
Unrealized(gain((loss)(O(OCI Security*Three ** *1,500,000
Security*Four ** *2,500,000
31-Dec-19 **** *100,000 Total (( (6,400,000

*** *100,000 Carrying(value(of(investments((=(Fair(value(as(of(Dec(31,(2020

31-Dec-20 *********** *- Security*One ***** *900,000
Security*Two ** *1,100,000
Security*Three ** *1,600,000
FA(@(FV(thru(OCI(O(Security(Four Security*Four ** *1,200,000
Total (( (4,800,000
Upon*Acquisition **2,000,000
Effect(of(the(Investments(to(the (Income(statement
unreal*gain **** *500,000 2019 2020
31-Dec-19 **2,500,000 Security*One -***** *800,000 ******* *500,000
*1,250,000 sale*of*1/2 Security*Two ***** *300,000 ******* *100,000
Security*Three
**1,250,000 Security*Four
Total O((((( (500,000 ((((((( (600,000
***** *50,000 unrealized*loss Decrease Increase
31-Dec-20 **1,200,000 in'income in'income

Effect(of(the(Investments(to(the (Statement(of(Comprehensive(income
Unrealized(gain((loss)(O(OCI 2019 2020
Security*One -***** *800,000 ******* *500,000
*** *500,000 Security*Two ***** *300,000 ******* *100,000
sale*of*1/2 **** *250,000 Security*Three -***** *100,000 ******* *100,000
****** *50,000 *********** *- Security*Four ***** *500,000 -******* *300,000
*** *200,000 31-Dec-20 Total O((((( (100,000 ((((((( (400,000
Decrease Increase
Cumulative(balance(of(Unrealized(gain(((loss)(seen(in(the(Shareholders'(equity
2019 2020
Security*Three -***** *100,000 ************** * -
Security*Four ***** *500,000 ******* *200,000
Total ***** *400,000 ******* *200,000