CA5105 – Investment in Equity Securities

Equity Instrument - Measured at Fair Value

- Any contract that evidences a residual
interest in the asset of an entity after 4. Unrealized Gain or Loss (Changes in Fair
deducting all liabilities Value)
- Included in Profit or Loss
% of Ownership Preference Ordinary Shares
Shares 5. Cumulative Unrealized Gain/Loss or
<20% FVPL or FVOCI FVPL or FVOCI
Accumulated OCI
20% to 50% FVPL or FVOCI Investment in
Associate - None because it is not recognized
51% to 100% FVPL or FVOCI Investment in
Subsidiary 6. Sale or Disposal
- Reported in Profit or Loss

INVESTMENT IN EQUITY SECURITIES FAIR VALUE THROUGH OTHER

1. FVPL COMPREHENSIVE INCOME (FVOCI)
2. FVOCI
3. Investment in Associate 1. Transaction cost
4. Investment in Subsidiary - Capitalized
- Treated as an initial cost of investment
Investment in Equity (Shares)
Ordinary - Can be designated at: 2. Dividend
Shares FVPL - Treated as Income
FVOCI
Investment in Associate 3. Carrying Value, BS Date
Investment in Subsidiary - Measured at Fair Value
- If interest exceeds 20%, it will
not be classified as dividend 4. Unrealized Gain or Loss (Changes in Fair
income Value)
Preferenc - Can be designated at: - It is recognized because it is a fair
value investment
e Shares FVPL
- Included in OCI section of SCI
FVOCI
Changes in - Other Comprehensive
*Ordinary Shares – gives a shareholder a
Fair Value Income section of
voting right or significant influence
(Current Statement of
Period) Comprehensive Income
*Preference Shares – priority of an entity when
- “for the period”
there is liquidation
- “Current Period”
Cumulative - Shareholders’ Equity
FAIR VALUE THROUGH PROFIT OR LOSS
UG/UL or section of Statement of
(FVPL)
Accumulate Financial Position
d OCI or - “as of”
1. Transaction cost
End. - “Current and Prior Period”
- Not capitalized
Balance
- Treated as EXPENSE
UNREALIZED GAIN OR LOSS
2. Dividend
- Treated as Income
Fair Value, BS Date xx
CV before Remeasurement, BS (xx)
3. Carrying Value, BS Date
Date
 CA5105 – Investment in Equity Securities

Unrealized Gain or Loss, xx OCI of

SCI
Current Period

EXAMPLE:
5. Cumulative Unrealized Gain/Loss or
Accumulated OCI 1/1/19 Php 100 Php 50
- Reported in SHE section of SFP (cost of buying Unrealized
the investment) Gain
12/31/19 Php 150
CUMULATIVE UG/UL or (market value at Debit: FVOCI
ACCUMULATED OCI year end) Credit: UG-OCI

Fair Value, BS Date xx

Original Cost/Initial Cost of (xx) Fair Value, BS Date 150
Investment CV before Remeasurement, (100)
Unrealized Gain or Loss, xx SHE of
SFP
BS Date
Ending Balance Unrealized Gain or Loss, 50 OCI of
SCI
Current Period

6. Sale or Disposal
- Reported in Retained Earnings Fair Value, BS Date 150
Original Cost/Initial Cost of (100)
Investment
Unrealized Gain or Loss, 50 SHE of
SFP
Ending Balance

12/31/19 Php 150 Php 20

(cost of buying Unrealized
the investment) Loss
12/31/20 Php 130
(market value at Debit: UL-OCI
year end) Credit: FVOCI

Fair Value, BS Date 130

CV before Remeasurement,
(150)
BS Date
Unrealized Gain or Loss, OCI of
(20) SCI
Current Period

Fair Value, BS Date 130

Original Cost/Initial Cost of
(100)
Investment
Unrealized Gain or Loss, SHE of
30 SFP
Ending Balance
Net UG
 CA5105 – Investment in Equity Securities

DIVIDENDS SALE or DISPOSAL

Cash Classified as Dividend
-
Income FVPL
Property (Fair - Classified as Dividend Sales Price xx
Value) Income based on MARKET CV Before Sale/Book Value (xx)
GAIN or LOSS xx Profit
/ FAIR VALUE or Loss
Share / Stock Same Class
/ Bonus Issue - Original share is the same
as shares given FVOCI
- Memorandum Entry Sales Price xx
(stated in Notes) CV Before Sale (xx)
- (Ex: You have ordinary shares in an
GAIN or LOSS xx Retained Earnings +
entity and you received also ordinary
Previous UG/UL that will
shares)
be transferred to
Retained Earnings
Different Class
- Original share is the not
Or
same as shares given
- Journal Entry
Sales Price xx
- Classified as Dividend
Original Cost (xx)
Income UG/UL bal. as of xx UG/UL bal. as of the
- Special dividend date of sale x % of sale
- (Ex: You have ordinary shares in an
the date of sale
entity and you received also preference
shares)

Same Class (Memorandum Entry)

- Increase – number of shares
- Decrease – cost per share
- NO Effect – total cost of investment

Stock Split / Split-Up

- No. of shares will increase
- No effect in total cost of investment

Reverse Stock Split / Split-Down

- No. of shares will decrease
- No effect in total cost of investment
-

Different Class (Dividend Income)

Journal Entry:
Investment in Preference Share xx
Dividend Income xx
 CA5105 – Investment in Equity Securities

DIVIDEND-ON & EX-DIVIDEND b. Include Dividend: (total Cash Received)

Date of Date of Date of Journal Entry:

Declaration Record Payment / Cash xx
Distribution Loss on Sale *
- Dividend is Dividend Receivable xx
recognized as Gain on Sale *
income Investment
Dividend – On
- Dividend is sold or
purchased between date of
declaration and date of
record
- Bought INVESTMENT and
DIVIDEND
Ex – Dividend
- Dividend is sold or
purchased between
date of declaration and
date of record
- Bought INVESTMENT
only

Date of Acquisition (Dividend-On Buyer)

a. Exclude Dividend: (Initial Cost of

Investment?)

Journal Entry:
Investment xx
Dividend Receivable xx
Cash xx

b. Include Dividend: (total Cash Paid?)

Journal Entry:
Cash xx
Dividend Receivable xx

Date of Sale (Dividend-On Seller)

a. Exclude Dividend: (Gain or Loss on

Sale?) (Sales Price excludes
DIVIDEND)

Journal Entry:
Dividend Receivable xx
Dividend Income xx
 CA5105 – Investment in Equity Securities

INVESTMENT IN ASSOCIATE 5. Unrealized Gain / Unrealized Loss

*focus on investor or yung naginvest (UG/UL)
- NONE because UG/UL only happens
Associate in changes in fair value when
- Investee with significant influence over the investment is measured at fair value
investment made
6. Amortization of Goodwill
Significant Influence - NONE because Goodwill is not
- Power to participate in the financial and amortized unless it is a SMALL or
operating policy decision of an entity MEDIUM entity

20%-50% 7. Gain or Loss on Sales

- In the absence of any information, as long - Reported in Profit or Loss
as the investor owns 20%-50% there is
significant influence
INVESTMENT IN ASSOCIATE
More than 50% - Beg. Balance - Share in Adjusted
- Significant CONTROL, not influence - Share in Adjusted Net Loss
Net Income - Share in OCI – Loss
Equity Method (PAS 28) - Share in OCI - Gain - Cash Dividend
- Investment in Associate uses equity CV, BS Date before Impairment Loss
method Impairment
CV, BS Date after
Investment in Ordinary Share Impairment
- Ordinary shares guarantee an investor
having voting rights GOODWILL
Cost xx
Fair Value of Net Assets Acquired (xx)
EQUITY METHOD Goodwill (Cost>FVNA) xx
1. Transaction Cost
- Added to initial cost of investment *Note:
- Capitalized - Goodwill is not recorded as a separate asset, unless
acquired in a business combination
- Included in the carrying amount of the investment
2. Dividend - Goodwill is not amortized unless the entity is a small
- Decreases the Carrying Value of and medium-sized entity
Investment - Cost< FVNA = Negative Goodwill / Gain from Bargain
- Cash received from dividends are Purchase (Income)
treated liquidating investments

3. Share in Net Income (SNI) / Share in

Net Loss (SNL) / Share in Other
Comprehensive Income (SOCI)
- Increase in CV of Investment if
reported as SNI, income or gain
- Decrease in CV of Investment if
reported as SNL, loss

4. Carrying Value, BS Date

- Carrying Value LESS Impairment
 CA5105 – Investment in Equity Securities

SHARE IN ADJUSTED NET INCOME/LOSS

- Share in amortization of excess fair value ASSOCIATE WITH PREFERENCE SHARE
over book value
- Amortization of excess = expense Share in Net Income = % x (Net Income –
- Subtracted from original share in NET Preference Dividend)
INCOME
Note:
a. Non-depreciable PPE - Cumulative = Deduct Preference dividend
- NONE unless sold whether declared or not
- Non-Cumulative – Deduct Pref. dividend
b. Depreciable PPE when declared only
- Depreciation Expense
Preference Dividend
c. Intangible Asset (How much?)
- Amortization Expense Cumulative with Annual Dividend
declaration (Example: P 100 is annual dividend
but only P80 is declared, P100 will
d. Inventory still be deducted because it is
- Cost of Goods Sold CUMULATIVE)
Cumulative without Annual Dividend
declaration (Cumulative are entitled to be
deducted)
Non-Cumulative Declared Dividend only
with Declaration (Example: P 100 is annual dividend
but only P80 is declared, P80 will
be deducted)
Non-Cumulative None Deducted
without declaration

CESSATION (Loss of Significant Influence)

- Use of EQUITY Method is NOT allowed
- Associate is now called “INVESTEE”
- Reclassifying Remaining interests to
Fair Value Investment

Total FV of Investment xx
Total CV of Investment (xx)
Total CESSATION Gain/Loss xx Profit or
Loss

% Realized (SOLD) = Gain/Loss on sale

% Unrealized (Reclassified) = Gain/Loss on
Reclassification
 CA5105 – Investment in Equity Securities

SHARE RIGHTS
- Preemptive Right – right to be offered
with share rights first before other
external people
- 1:1 Ratio
- Number of Shares owned = number of
Rights
- FVPL

Transactions:

a. Receipt/Issuance
- Memorandum entry
- FV of stock right is not determinable

Journal Entry: Receipt/Issuance (if stock right

is given)
Stock Right xx
Investment Income xx

b. Exercise/Purchase

Journal Entry: Exercise /Purchase

Investment (based on FV of xx
Shares)
Cash (based on exercise Price xx
Investment Income (based on xx
FV of stock right)

FV of Shares = Exercise Price + FV of Stock

Right

FV of stock right = FV of Shares – Exercise

Price

c. Sale

Journal Entry: Sale

Cash xx
*Loss xx
Stock Right xx
*Gain xx

d. Lapse/Expiration

Journal Entry: Lapse/Expiration

*Loss xx
Stock Right xx