➢ Fair Value through Other Comprehensive Income (FVOCI) – Equity Securities

At initial recognition, an entity with an investment in nontrading equity instrument can make an
irrevocable election to present it in other comprehensive income.

Financial assets at FV through Other Comprehensive Income is normally classified as non-current

asset

ILLUSTRATION 1: INDIVIDUAL SECURITY (WITH UNREALIZED GAIN)

Acquisition KEY TAKEAWAYS:

On January 1, 2019, an entity purchased marketable securities for
1) If the financial asset is not
P1,000,000. The entity paid commission and taxes of P100,0002. held for trading, and the
The equity securities do not qualify as financial asset held for trading. The problem explicitly state that
entity made an irrevocable election to present unrealized gain and loss in the entity made an irrevocable
election, then the financial
other comprehensive income1. asset shall be classified as FA
at FVOCI.
Journal entry to recognize the acquisition:
FA – FVOCI 1,100,000 2) The classification will dictate
whether transaction cost is
Cash 1,100,000
capitalized or expensed
outright. If classified as FVOCI,
Year End the transaction costs is
On December 31, 2019, the securities have a market value of P1,300,000. capitalized.

To record the increase3 in fair value at year end: 3) The current unrealized gain is
FA – FVOCI 200,000 presented as part of OCI in the
Statement of Comprehensive
Unrealized Gain – OCI 200,000 Income.

On December 31, 2020, the securities have a market value of P1,600,000. 4) Current unrealized gain or
loss is presented as part of OCI
To record the increase3 in fair value at year end: in SCI, but then transferred to
FA – FVOCI 300,000 Retained Earnings when
derecognized; while
Unrealized Gain – OCI 300,000 cumulative gain or loss is
4 presented as part of SHE in the
NOTE: P300,000 will be reported in 2020 Statement of Comprehensive Statement of Financial
Income. The total amount of P500,000 unrealized gain will be reported in the Position.
Shareholder’s Equity. Financial assets are carried in
the SFP at their FV at year-end.
KEY TAKEAWAYS
• Accumulated other comprehensive income (OCI) includes unrealized Disclosure in the notes to FS of
gains and losses that are reported in the equity section of the balance the cost of the financial asset.
sheet. 5) The carrying amount to be
• An unrealized gain or loss occurs when an investment, pension plan, derecognized upon sale is the
or hedging transaction has appreciated or depreciated in fair value, market value of the financial
asset at previous
but a sale transaction has not yet occurred for the gain or loss to be remeasurement.
realized.
• Accumulated other comprehensive income is displayed on the 6) Cumulative gain or loss
previously recognized in OCI
balance sheet in some instances to alert financial statement users to shall be transferred to
a potential for a realized gain or loss on the income statement down Retained Earnings.
the road. The amount recognized in OCI is
not reclassified to Profit or Loss
under any circumstances.
Sale
On July 1, 2021, the securities are sold for P2,000,000.

Journal entry to record the sale:

Cash 2,000,000
5
FA – FVOCI 1,600,000
Retained Earnings 400,000

To transfer cumulative unrealized gain:

Unrealized Gain – OCI 500,000
6
Retained Earnings 500,000

ILLUSTRATION 2: INDIVIDUAL SECURITY (WITH UNREALIZED LOSS)

KEY TAKEAWAYS:
Acquisition 1) The unrealized loss is
On January 1, 2019, an entity purchased marketable securities for reported as a deduction in
OCI.
P2,000,000. The securities do not qualify as financial asset held for trading.
The entity elected to present changes in fair value in other comprehensive Financial assets are carried in
income the SFP at their FV at year-end.

Disclosure in the notes to FS of

Journal entry to recognize the acquisition: the cost of the financial asset.
FA – FVOCI 2,000,000 2) The carrying amount to be
Cash 2,000,000 derecognized upon sale is the
market value used to
Year End remeasure the financial asset
at the previous balance sheet
On December 31, 2019, the securities have a market value of P1,800,000. date.

To record the decrease1 in fair value at year end: 3) Cumulative gain or loss
Unrealized Loss – OCI 200,000 previously recognized in OCI
shall be transferred to
FA – FVOCI 200,000
Retained Earnings.
On December 31, 2020, the securities have a market value of P1,300,000. The amount recognized in OCI is
not reclassified to Profit or Loss
To record the decrease in fair value at year end: under any circumstances.
Unrealized Loss – OCI 500,000
FA – FVOCI 500,000

NOTE: P500,000 will be reported in 2020 Statement of Comprehensive

Income. The total amount of P700,000 unrealized loss will be reported in the
Shareholder’s Equity.

Sale
On July 1, 2021, the securities are sold for P1,200,000.

Journal entry to record the sale:

Cash 1,200,000
Retained Earnings 100,000
2
FA – FVOCI 1,300,000

To transfer cumulative unrealized loss:

Retained Earnings3 700,000
Unrealized Loss – OCI 700,000
ILLUSTRATION 3: PORTFOLIO OF SECURITIES (MULTIPLE SECURITIES)

Acquisition and Year End

KEY TAKEAWAYS:
On January 1, 2019, an entity acquired marketable equity securities not
qualifying as financial asset held for trading. 1) Unrealized gain and
unrealized loss are offset
The entity elected to present changes in fair value as component of other against each other and only net
comprehensive income. amount is recorded.

On December 31, 2019, the securities have the following cost and market 2) Gain or loss on sale of FA at
FVOCI shall be reported to
value: Retained Earnings
Cost Market Value Gain (Loss)
Security A 1,000,000 1,100,000 100,000 3) In the sale of an individual
security, cumulative unrealized
Security B 2,000,000 2,700,000 700,000 gain or loss related to it shall be
Security C 3,000,000 2,800,000 (200,000) transferred to Retained
6,000,000 6,600,000 600,000 Earnings.

The amount recognized in OCI is

Journal entry to recognize the acquisition: not reclassified to Profit or Loss
FA – FVOCI 6,000,000 under any circumstances.
Cash 6,000,000
4) The carrying amount to be
1
To record the net increase in fair value at year end: compared with the current
market value is the value used
FA – FVOCI 600,000 to remeasure the financial
Unrealized Gain - OCI 600,000 asset at the previous balance
sheet date
Sale of Individual Security
5) Cumulative unrealized gain or
On July 1, 2020, Security A was sold for P1,400,000.
loss is always the difference
between the original cost and
Journal entry to record the sale: current market value.
Cash 1,400,000
FA – FVOCI 1,100,000
Retained Earning2 300,000

To transfer unrealized gain related to the security:

Unrealized Gain - OCI 100,000
Retained Earnings3 100,000

Year End
On December 31, 2020, the remaining securities have the following carrying
amount and market value:
Carrying Amount4 Market Value Gain/(Loss)
Security B 2,700,000 3,500,000 800,000
Security C 2,800,000 2,750,000 (50,000)
5,500,000 6,250,000 750,000

To record the net increase in fair value at year end:

FA – FVOCI 750,000
Unrealized Gain - OCI 750,000

5
NOTE: Cumulative Unrealized Gain or Loss
Unrealized gain – December 31, 2019 600,000
Unrealized gain – Security A (100,000)
Unrealized gain – December 31, 2020 750,000
Cumulative unrealized gain – December 31, 2020 1,250,000
OR Total original cost 5,000,000
Less: Market value – December 31, 2020 6,250,000
Cumulative UG – December 31, 2020 1,250,000

ILLUSTRATION 4: PORTFOLIO OF SECURITIES

Akagi Company acquired the following equity securities. JOURNAL ENTRIES:

December 31, 2019 Cost Market Value December 31, 2019

ULoss – FVOCI 150,000
Leo Company 300,000 220,000
FA – FVOCI 150,000
Libra Company 500,000 380,000
Virgo Company 700,000 750,000 December 31, 2019
FA - FVOCI 50,000
ULoss – FVOCI 50,000
December 31, 2020
Leo Company 300,000 320,000
Libra Company 500,000 400,000
Virgo Company 700,000 680,000

The equity securities do not qualify as held for trading.

The entity has elected irrevocably to present changes in fair

value in other comprehensive income.

Required: Prepare journal entries on December 31, 2019 and

December 31, 2020.

ILLUSTRATION 5: PORTFOLIO OF SECURITIES

JOURNAL ENTRIES:
Shoyo Company reported the following accounts in the
statement of financial position on January 1, 2019. a. ULoss – OCI 100,000
FA – FVOCI 100,000
Non-current assets
Note: Cost was stated in the illustration and
Financial assets – FVOCI 4,000,000 not carrying amount. Thus, portion of the
Market adjustment for unrealized loss (500,000) difference with market value was already
recorded in the books as adjustments for
Market value 3,500,000
unrealized loss as 500,000 and only the
Other comprehensive income 100,000 not yet recognized loss shall be
Unrealized loss – OCI (500,000) recorded.

b. Cash 2,100,000
An analysis of the investment portfolio revealed the following FA – FVOCI 2,000,000
on December 31, 2019 Retained Earnings 100,000
Cost Market Value
Retained Earnings 500,000
BEL ordinary shares 1,000,000 1,200,000 ULoss – OCI 500,000
GAB ordinary shares 2,500,000 2,000,000
Note: In the sale of individual securities, gain
JES preference share 500,000 200,000 on sale shall be recorded directly to Retained
4,000,000 3,400,000 Earnings. (Under any no circumstance that it
will be reported in profit or loss)
On July 1, 2020, the GAB ordinary share was sold for P2,100,000.
Cumulative gain or loss recognized in OCI
shall also be transferred to Retained Earnings
On December 31, 2020, the remaining investments have the
following market value: c. ULoss – OCI 250,000
FA – FVOCI 250,000
BEL ordinary share 1,000,000
JES preference share 150,000 Note: The carrying amount to be compared
with the current market value is the value
used to remeasure the financial asset at the
previous balance sheet date.
 Required: (a) Prepare journal entry to recognize the decrease in
value on December 31, 2019. (b) Prepare journal entry to record
the sale of GAB ordinary share on July 1, 2020. (c) Prepare
journal entry on December 31, 2020 to recognize the change in
fair value.

➢ Fair Value through Other Comprehensive Income (FVOCI) – Debt Securities

NOTE: For debt instruments that are classified as FVOCI entities will need to track both the amortized
cost and fair value. The amounts recorded in profit or loss will reflect amortized cost and the balance
sheet will reflect the fair value of the financial asset.

The accounting requirements for debt instruments classified as FVOCI are:

• Interest income is recognized in profit or loss using the effective interest rate method that is
applied to financial assets measured at amortized cost.
• Foreign exchange gains and losses on the amortized cost are recognized in profit or loss.
• Credit impairment losses/reversals are recognized in profit or loss using the same credit
impairment methodology as for financial assets measured at amortized cost; Debt
instruments at FVOCI.
• Other changes in the carrying amount on remeasurement to fair value are recognized in OCI.
• The cumulative fair value gain or loss recognized in OCI is recycled from OCI to profit or loss
when the related financial asset is derecognized.