GEN 009/The Entrepreneurial Mind for BSA

(converted to Intermediate Accounting)

Student Activity Sheets Module #3
Name:REYMARK L BADLO________________________________________ Class number:__________
Section:_______________ Schedule:_________________________________ Date:_________________
Lesson Title: Investments – Additional Materials:
Concepts Student Activity Sheets, Pen, Basic
Lesson Objectives: calculator, Intermediate Accounting 1A
At the end of this module, I should be able to: 1. textbook
Account for regular way purchase or sale of
financial assets. References:
2. Explain the treatment of reclassification and Millan, Z. B, Intermediate Accounting 1A
impairment of financial assets.

Productivity Tip: If you want something you never had, you have to do something you’ve never
done. Close your eyes, meditate for 1-3 minutes and you may start reading this module.

A. LESSON PREVIEW/REVIEW
1. Introduction

Good day, future accountant! Welcome back to learning the General elective converted Intermediate
Accounting. The immediately preceding module presented the orientation about the Investments in
debt securities. As a continuation, this module introduces the Investments – additional concepts
(regular way of purchase or sale of financial assets, reclassification and impairment of
financial assets).

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

Try answering the questions below by writing your ideas under the first column What I 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

The financial asset sold is
derecognized on the trade
date (i.e., the date of
commitment to sell). The
receivable from the sale is
recognized on the trade
date.
1.How do you account for
regular way purchase or sale
of financial assets?
The financial asset sold is
derecognized on the
settlement date (i.e., the
asset sold is delivered to the
buyer). These sale proceeds
and any gain or loss on the
sale are recognized on the
settlement date.

An entity accounts for the 2.What is the treatment of Purchase transaction:

change in the fair value of
the purchased asset during
the period between the trade
date and the settlement date
(under both trade and
settlement date accounting)
in the same way as it
accounts for the acquired
reclassification of financial
assets?
The financial asset acquired
and the associated liability to
pay for it are recognized only
on the settlement date (i.e.,
the date the purchased
asset is received).
 asset (i.e., in profit or loss if
the purchased asset is
classified as FVPL; in OCI if
classified as FVOCI; and
ignored if classified as
Amortized cost).

12 month expected credit loss
– recognized if the credit risk
on a financial instrument has
not increased significantly
since initial recognition.
3.What is the treatment of
impairment of financial
assets?
Lifetime expected credit loss –
recognized if the credit risk on
that financial instrument has
increased significantly since
initial recognition

This document and the information thereon is the property of PHINMA Education.] 1

GEN 009/The Entrepreneurial Mind for BSA

(converted to Intermediate Accounting)
Student Activity Sheets Module #3
Name:_________________________________________________________ Class number:__________
Section:_______________ Schedule:_________________________________ Date:_________________
B. MAIN LESSON
1) Activity 2: Content Notes

• Under the trade date accounting, a financial asset that is purchased is recognized (and financial
asset that is sold is derecognized) on the trade date, i.e., the date of commitment to purchase or to
sell.
Trade Date Accounting Settlement Date Accounting

Purchase transaction: Purchase transaction:

The financial asset acquired and the The financial asset acquired and the
associated liability to pay for it are associated liability to pay for it are
recognized on the trade date (i.e., the date recognized only on the settlement date (i.e.,
of commitment to purchase). the date the purchased asset is received).

Sale transaction: Sale transaction:

The financial asset sold is derecognized on
the trade date (i.e., the date of commitment
to sell). The receivable from the sale is
recognized on the trade date.
The financial asset sold is derecognized on
the settlement date (i.e., the asset sold is
delivered to the buyer). These sale proceeds
and any gain or loss on the sale are
recognized on the settlement date.

Purchase transaction Sale transaction

An entity accounts for the change in the fair
value of the purchased asset during the
period between the trade date and the
settlement date (under both trade and
settlement date accounting) in the same way
as it accounts for the acquired asset (i.e., in
profit or loss if the purchased asset is
An entity does not account for the change in
the fair value of the asset sold during the
period between the trade date and the
settlement date (under both trade date and
settlement date) because the seller’s right to
the changes in the fair value of the asset
sold ceases in trade date.
 classified as FVPL; in OCI if classified as
FVOCI; and ignored if classified as
Amortized cost).

• An entity accounts for the fair value change between the trade date and the settlement date for a
purchased financial asset but not for financial asset sold.
• Reclassification of financial assets is permitted only when the entity changes its business model for
managing financial assets. Reclassification is applied prospectively on reclassification date, which
is the first day of the reporting period following the change in business model.
o Reclassification date is defined as the first day of the first reporting period following the
change in business model that results in an entity reclassifying financial assets. The first
day of next reporting period may mean the first day of the next quarter in which financial
statement is required to be presented.
• Only debt-type financial assets can be reclassified. Equity instruments cannot be reclassified. •
Reclassification are accounted for the reclassification date fair value, except for a reclassification from
FVOCI to AC whereby the reclassification date fair values is adjusted for the cumulative gain or loss
previously recognized in OCI.
• PFRS 9 allows only reclassification of debt securities are allowed:
o FAAC ----------------→ FVPL (debt)
o FAAC <---------------- FVPL (debt)
o FAAC ----------------→ FVOCI (debt)
This document and the information thereon is the property of PHINMA Education.] 2

GEN 009/The Entrepreneurial Mind for BSA

(converted to Intermediate Accounting)
Student Activity Sheets Module #3
Name:_________________________________________________________ Class number:__________
Section:_______________ Schedule:_________________________________ Date:_________________
o FAMAC <---------------- FVOCI (debt)
o FVPL ----------------→ FVOCI (debt)
o FVPL <---------------- FVOCI (debt)
FAAC – Fair value at Amortized Cost
FVOCI – Fair value through Other Comprehensive Income
FVPL – Fair Value through Profit or Loss

• IMPAIRMENT
o Impairment of financial assets is now covered under PFRS 9. Under PAS 39, it used the
incurred loss model (ILM) in recognizing impairment. It is only recognized when there is an
objective 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.
o An entity shall recognize a loss allowance for expected credit loss on FAAC, FVOCI (debt), a
lease receivable, a contract asset or a loan commitment and financial guarantee contract. ▪
Credit loss is the difference between all contractual cash flows that are due to an entity in
accordance with the contract and all the cash flows that the entity expects to receive (i.e.,
all cash shortfalls), discounted at the original effective interest rate (or credit adjusted
effective interest rate for purchased or originated credit-impaired financial assets).
▪ Expected credit loss is classified as either:
▪ 12 month expected credit loss – recognized if the credit risk on a financial
instrument has not increased significantly since initial recognition.
▪ Lifetime expected credit loss – recognized if the credit risk on that financial
instrument has increased significantly since initial recognition
 o Credit Risk defined under PFRS 7 as the risk that one party to a financial instrument will
cause a financial loss for the other party by failing to discharge an obligation.
o Cash short fall is the difference between contractual cashflow and cashflow that an entity
expects to receive.
o Impairment Gain (i.e., reversal) and Loss
▪ in accordance with paragraph 5.5.8 of PFRS 9,l an entity shall recognize in profit or
loss, as an impairment gain or loss, the amount of expected credit loss (or reversal)
that is required to adjust the loss allowance at the reporting date. The major change
from PAS 39 is that under PFRS 9, there is no limit on impairment reversal.
▪ The amount of gain or loss is computed as follows:
• Carrying amount XX Less: Present value of estimated future cash flows
discounted at the
Financial asset’s original effective interest rate at initial
Recognition XX
Impairment loss (this is a positive difference)/
Impairment gain (this is a negative difference) – P&L XX

This document and the information thereon is the property of PHINMA Education.] 3

GEN 009/The Entrepreneurial Mind for BSA

(converted to Intermediate Accounting)
Student Activity Sheets Module #3
Name:_________________________________________________________ Class number:__________
Section:_______________ Schedule:_________________________________ Date:_________________
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.

FALSE. 1. BTS Co. commits to purchase a financial asset on Day 1. The transaction will be
settled on Day 4. If BTS Co. uses the trade date accounting, the financial asset will be initially
recognized on Day 4.
TRUE, 2. On Day 1, BT21 Co. commits to sell a financial asset. The sale transaction will be
settled on day 4. If BT21 Co. appropriately derecognizes the asset on Day 4, BT21 Co. must
have adopted the settlement date accounting.
FALSE3. Reclassification are made on the date an entity changes its business model for
managing financial asset.
FALSE4. A change in management’s intention for holding particular financial asset would trigger
the reclassification of financial asset between the measurement categories of PFRS 9.
FALSE 5. The impairment accounting under PFRS 9 applies to all the measurement categories
of financial asset.

MULTIPLE CHOICE. Write your answer before the number.

B1. When an investment in a debt security measured at amortized cost is transferred to held for
trading security, the carrying amount assigned to the held for trading security should be a.
its original cost.
b. its fair value at the date of the transfer.
c. the lower of its original cost or its fair value at the date of the transfer.
 d. the higher of its original cost or its fair value at the date of the transfer.

D2. When an investment in equity securities irrevocably elected on initial recognition to be

subsequently measured at FVOCI is transferred to held for trading because the company
anticipates selling the stock in the near future, the carrying amount assigned to the investment
upon entering it in the trading portfolio should be
a. its original cost.
b. its fair value at the date of the transfer.
c. the higher of its original cost or its fair value at the date of the transfer.
d. None of these

C3. According to PFRS 9 Financial Instruments, investments in debt securities classified under
the amortized cost measurement category should be recorded on the date of acquisition at

a. lower of cost or market.

b. market value.
c. fair value plus brokerage fees and other costs incident to the purchase.
d. face value.

This document and the information thereon is the property of PHINMA Education.] 4

GEN 009/The Entrepreneurial Mind for BSA

(converted to Intermediate Accounting)
Student Activity Sheets Module #3
Name:_________________________________________________________ Class number:__________
Section:_______________ Schedule:_________________________________ Date:_________________

D4. Which of the following is correct about the effective interest method of amortization? a. The
effective interest method applied to investments in debt securities is different from that
applied to bonds payable.
b. The amortization of a discount decreases from period to period.
c. The amortization of a premium decreases from period to period.
d. The effective interest method produces a constant rate of return on the book
value (carrying amount) of the investment from period to period.

A5. A debt security is purchased at a discount. The entity wants to classify the investment as a
financial asset measured at FVOCI. The entry to record the amortization of the discount includes

a. debit to investment account.

b. debit to the discount account.

c. debit to Interest Revenue
d. none of these.

3) Activity 4: What I know Chart, part 2

It’s time to answer the questions in the What I know chart in Activity 1. Log in your answer in the third
column.

4) Activity 5: Check for understanding

PROBLEM SOLVING. Use separate paper for your solutions. Your solutions must be in proper form
and attach in this SAS.
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.

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)
 This document and the information thereon is the property of PHINMA Education.] 5

GEN 009/The Entrepreneurial Mind for BSA

(converted to Intermediate Accounting)
Student Activity Sheets Module #3
Name:_________________________________________________________ Class number:__________
Section:_______________ Schedule:_________________________________ Date:_________________
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.

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.
 C.

LESSON WRAP-UP
1) Activity 5: Thinking about Learning
Congratulations for finishing this module! Shade the number of this module that you just have finished.
P1 P2 P3
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 25

Did you have challenges learning the concept in this module? If none, which part of module helped
you learn the concepts? ____________________________________________________________

Assignment:
Read Investments – Additional Concepts (Dividends) in your book.This document and the information thereon
is the property of PHINMA Education.] 6
 GEN 009/The Entrepreneurial Mind for BSA
(converted to Intermediate Accounting)
Student Activity Sheets Module #3

Name:_________________________________________________________ Class number:__________

Section:_______________ Schedule:_________________________________ Date:_________________
KEY TO CORRECTIONS
TRUE OR FALSE
1. FALSE – Day 1
2. TRUE
3. FALSE
4. FALSE
5. FALSE

MULTIPLE CHOICE
3. B
4. D
5. C
6. D
7. A

CHECK FOR UNDERSTANDING

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

This document and the information thereon is the property of PHINMA Education.] 7

GEN 009/The Entrepreneurial Mind for BSA

(converted to Intermediate Accounting)
Student Activity Sheets Module #3
Name:_________________________________________________________ Class number:__________
Section:_______________ Schedule:_________________________________ Date:_________________
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. 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. Solution:
Dec. 31, Impairment loss – P/L 9,000
20x1 Unrealized loss – OCI 21,000

This document and the information thereon is the property of PHINMA Education.] 8

GEN 009/The Entrepreneurial Mind for BSA

(converted to Intermediate Accounting)
Student Activity Sheets Module #3
Name:_________________________________________________________ Class number:__________
Section:_______________ Schedule:_________________________________ Date:_________________
Investment in bonds – FVOCI 30,000

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

This document and the information thereon is the property of PHINMA Education.] 9