CHAPTER

BLUE NOTES
10 S
L
Financial Asset @ Fair Value Financial Asset @ Amortized Cost

 debt securities – creditor relationship in an entity  debt securities

 equity securities – ownership interest in an entity  equity securities

The ff. financial assets (FA) shall be measured at “Fair

value through P/L”
 FA held for trading or “trading securities”
 FA that are designated on initial recognition as at
Fair value through P/L
 All other investments in quoted equity
instruments.
Initial Measurement = Fair value or the consideration Initial Measurement = Fair value or the consideration +
Note: Transaction cost directly incurred for the acquisition of financial Transaction cost
assets at FV through P/L shall be expensed immediately.

Subsequent Measurement of financial asset depends on Entity’s business model:

the entity’s business model for managing financial assets.  To hold the investment in order to collect
 To hold the investment in order to realize fair contractual cash flows.
value changes  The contractual cash flows are solely payments of
NOTE: Financial assets that do not meet the conditions for amortizes principal and interest on the principal
cost measurement shall be measured at fair value. outstanding.
Subsequent Measurement = Amortized Cost

Unrealized Gains and Losses Unrealized Gains and Losses

 On financial assets held for trading and other FA  On FA at amortized cost are not recognized
measured at fair value are reported in the income because such investments are not reported at fair
statement value.
NOTE: an entity may make an irrecoverable election to present in OCI
subsequent changes in fair value of an investment in
investment equity that is NOT held for trading.
\

Reclassification to FV to amortized cost: Reclassification from amortized cost to FV:

The fair value at the reclassification date becomes the The fair value of the debt instrument is determined at
new carrying amount of the FA at amortized cost. reclassification date. The increase or decrease in FV is
recognized in profit or loss.

Impairment Impairment
It is not necessary to assess FA at FV for impairment. The entity shall assess at the end of each reporting period
whether there is objective evidence that a FA or a group
of FA measured @ amortized cost in impaired.

Theory of Accounts Practical Accounting 1

38 USL Blue Notes Chapter 10 – Financial Assets @ Fair Value

Impairment Loss = Carrying Amount – PV of estimated

future cash flows
discounted at
the original
effective interest
rate.

Practical Accounting 1 Theory of Accounts