Name: MABAO,REZY P.

SAS #3
Date:AUGUST 05,2021
Section: A-BSA-05

2. Activity 1: What I know Chart, part 1

Try answering the questions below by writing your ideas under the first column What Know.
It’s okay if you write key words or phrase that you think related to the questions.

What I know Questions What I learned

Regular way purchase or 1.How do you account for The financial asset acquired
sale is a purchase or sale of regular way purchase or sale and the associated liability to
of financial assets? pay for it are recognized on
a financial asset under a the trade date (i.e., the date
contract whose terms of commitment to purchase.
require delivery of the asset
within the time frame
established generally by
regulation or convention in
the marketplace concerned
(IFRS 9.

When an entity reclassifies 2.What is the treatment of Reclassification of

reclassification of financial financial assets is
a financial asset so that it is
assets? permitted only when the
measured at fair value, its entity changes its business
fair value is determined at model for managing
the reclassification date. financial assets.
Reclassification is applied
Any gain or loss arising prospectively on
from a difference between reclassification date, which
the previous carrying is the first day of the
reporting period following
amount and fair value is the change in business
recognized in profit or loss. model.

Impairment of Assets seeks 3.What is the treatment of Impairment of financial

impairment of financial assets is now covered
to ensure that an entity's
assets? under PFRS 9. Under PAS
assets are not carried at 39, it used the incurred
more than their recoverable loss model (ILM) in
amount (i.e. the higher of recognizing impairment. It
is only recognized when
fair value less costs of there is an objective
 disposal and value in use). evidence of impairment.
However, under PAS 39, it
uses the expected loss
model (ELM). It
recognizes impairment
even though there is no
objective evidence that the
asset is impaired.

2) Activity 3: Skill Building Activity

TRUE OR FALSE. Before each number, write TRUE, if the statement is correct, and
FALSE if it is incorrect.

1. FALSE – Day 1
2. TRUE
3. FALSE
4. FALSE
5. FALSE

MULTIPLE CHOICE. Write your answer before the number.

1.. B
2. D
3C
4. D
5. A

Activity 5: Check for understanding

1. On Dec 29, 20x1, Jin Co. acquires 1,000 units of an investment through a broker
at P1.00 per unit. Ownership over the financial asset transfers to Jin Co., and
Jin Co. pays the purchase price on Jan 3, 20x2. The fair values per unit are
P1.75 on Dec 31, 20x1 and P1.50 on Jan 3, 20x2. Requirement: Provide the
journal entries under (1) trade date accounting and (2) settlement date
accounting assuming the investment is classified as: (a)FVPL; (b)FVOCI
(mandatory); and (c) Amortized cost.

ANSWERS
1.Solutions:
(a) FVPL
Date Trade date accounting Settlement date accounting
 Dec. FVPL asset 1,000 No entry
29, Payable 1,000
20x1

Dec. FVPL asset 750 Receivable 750

31, Unrealized gain – P/L 750 Unrealized gain – P/L 750
20x1

Jan. 3, Unrealized loss – P/L 250 FVPL asset 1,500

20x2 Payable 1,000 Unrealized loss – P/L 250
FVPL asset 250 Receivable 750 Cash 1,000
Cash 1,000

(b) FVOCI
Date Trade date accounting Settlement accounting

Dec. FVOCI asset 1,000 No entry

29, Payable 1,000
20x1

Dec. FVOCI 750 Receivable 750

31, Unrealized gain – OCI 750 Unrealized gain – OCI 750
20x1

Jan. 3, Unrealized loss – OCI 250 FVOCI asset 1,500

20x2 Payable 1,000 Unrealized loss – OCI 250
FVOCI asset 250 Receivable 750 Cash 1,000
Cash 1,000

(c) Amortized cost

Date Trade date accounting Settlement accounting

Dec. Amortized cost asset 1,000 No entry

29, Payable 1,000
20x1

Dec. No entry No entry

31,
20x1

Jan. 3, Payable 1,000 Amortized cost asset 1,000

20x2 Cash 1,000 Cash 1,000
2. V Co. changed its business model in 20x2. On Jan 1, 20x3 (reclassification date), a debt-
type financial asset has a carrying amount of P200,000 and fair value of P240,000.
Requirements: Provide the entry (entries) on reclassification date assuming the
financial asset is reclassified from:
a. Amortized cost to FVPL
b. FVOL to amortized Cost
c. Amortized cost to FVOCI
d. FVOCI to Amortized Cost (the cumulative balance of gains and losses
previously recognized in OCI is P10,000)
e. FVPL to FVOCI
f. FVOCI to FVPL (the cumulative balance of gains and losses previously
recognized in OCI is P10,000)
ANSWERS

2. Solutions:

(a): Amortized cost to FVPL

Jan. 1, FVPL asset 240,000 200,000
20x3 Amortized cost asset 40,000
Gain on reclassification – P/L

(b): FVPL to Amortized cost

Jan. 1, FVPL asset 40,000 40,000
20x3 Unrealized gain – P/L

Jan. 1, Amortized cost asset 240,000 240,000

20x3 FVPL asset

(c): Amortized cost to FVOCI

Jan. FVOCI asset 240,000 200,000
1, Amortized cost asset 40,000
20x3 Gain on reclassification – OCI

(d): FVOCI to Amortized cost

Jan. FVOCI asset 40,000 40,000
1, Unrealized gain – OCI
20x3

Jan. Amortized cost asset (squeeze) 190,000 240,000

1, Unrealized gain – OCI (10K + 40K) 50,000
20x3 FVOCI asset
(e): FVPL to FVOCI
Jan. 1, FVPL asset 40,000 40,000
20x3 Unrealized gain – P/L

Jan. 1, FVOCI asset 240,000 240,000

20x3 FVPL asset

(f): FVOCI to FVPL

Jan. FVOCI asset 40,000 40,000
1, Unrealized gain – OCI
20x3

Jan. FVPL asset 240,000 240,000

1, FVOCI asset
20x3

Jan. Unrealized gain – OCI 50,000 50,000

1, Gain on reclassification – P/L
20x3

3. On Jan 1, 20x1, Suga Co. acquires P300,000 face amount, 10% bonds of Mojo, Inc. for
P300,000. Suga classifies the bonds as subsequently measured at fair value through other
comprehensive income. On Dec 31, 20x1, the fair value of the bonds is P270,000. Suga
estimates 12-month expected credit losses of P9,000.
Requirements: Prepare the journal entry to recognize the decrease in the fair
value of the investment.

ANSWERS
3. Solution:
Dec. 31, Impairment loss – P/L 9,000
20x1 Unrealized loss – OCI 21,000

Investment in bonds – FVOCI 30,000

4. An entity reclassifies a portfolio of bonds on Jan 1, 20x3. Information on the portfolio is

as follows: Carrying amount under previous classification 500,000
Fair value on reclassification date (Jan 1, 20x3) 490,000
Case1: The portfolio is reclassified from FVPL to Amortized cost. On reclassification date,
the entity estimates 12 month expected credit losses of P4,000. Provide Journal entries.
Case 2. The portfolio is reclassified from FVOCI to Amortized cost. The cumulative balance
gains and losses in equity as of Dec 31, 20x2 is zero. On reclassification date, the entity
estimates lifetime expected credit losses of P6,000. Provide the reclassification journal
entry. Case 3. The portfolio is reclassified from FVOCI to FVPL. The cumulative balance of
gains and losses in equity as of December 31, 20x2 is zero. On reclassification date, the
entity estimates lifetime expected credit losses of P6,000. Provide the reclassification
journal entry.

ANSWERS
4. Solution:
Case 1
Jan. 1, Unrealized loss – P/L 10,000 10,000
20x3 FVPL asset
to record the change in fair value on reclassification
date

Jan. 1, Amortized cost asset 490,000 490,000

20x3 FVPL asset
to record the reclassification

Jan. 1, Impairment loss – P/L 4,000 4,000

20x3 Loss allowance
to record the commencement of accounting for
impairment

Case 2
Jan. 1, Impairment loss 6,000 10,000
20x3 Unrealized loss – OCI 4,000
FVOCI asset
to recognize the impairment loss and change in fair
value on reclassification date

Jan. 1, Amortized cost asset (squeeze) 500,000 490,000

20x3 FVOCI asset 6,000
Loss allowance 4,000
Unrealized loss – OCI
to record the reclassification

Case 3
Jan. 1, Impairment loss 6,000 10,000
20x3 Unrealized loss – OCI 4,000
FVOCI asset
to recognize the impairment loss and change in fair
value on reclassification date

Jan. 1, FVPL asset 490,000 490,000

20x3 FVOCI asset
to record the reclassification
Jan. 1, Loss on reclassification – P/L 4,000 4,000
20x3 Unrealized loss – OCI
to record the reclassification adjustment to P/L