1

INVESTMENT IN SECURITIES Investment in Debt Securities

INTERES DIVI
T
 2
Investment in Equity Securities

DIVIDEND
Related standards
PFRS 9 Financial instruments
PFRS 13 Fair value measurement
PAS 32 Financial instruments: Presentation

Investor Investee
ABC Co. XYZ Co.

1) FA FL Investment in Debt Securities

2) FA Equity Investment in Equity Securities

 Financial assets

Cash and cash equivalents

Receivables
Investment in equity or debt instruments
Sinking fund

nt in Debt Securities

in Equity Securities
 Financial liabilities Equity instruments

Payables Shares of stock

Lease liabilities
Held for trading liabilities and derivative liabilities
Redeemable preference shares issued
Security deposits and other returnable deposits
INVESTMENT IN DEBT SECURITIES
Three characteristics: t t
t en en
1. Maturity value m en ym m
y Pa Pay
2. Periodic payments Pa
s s s
3. Maturity date

Purchase price Purchase price

Face amount (present value)
At a premium 1000000 1100000 Stated rate > Market rate

At a discount 1000000 900000 Stated rate < Market rate

At Face Value 1000000 1000000 Stated rate = Market rate

Classification of Debt Investment BM Test

1) FA at Amortized cost (AC) "Hold to collect"
2) FA at Fair value through other comprehensive income (FVOCI) "Hold to collect & sell"
3) FA at Fair value through profit or loss (FVPL)* "Held for trading"
*Neither hold to collect or to sell"

What is the basis of classification of financial assets?

1 BUSINESS MODEL TESTS

Either,
Objective is to hold financial assets in order to collect contractual cash flows.
Objective is both to collect contractual cash flows and to sell the financial assets.
Objective is neither to collect contractual cash flows nor to sell the financial assets.

2 CONTRACTUAL CASH FLOW TESTS

The contractual terms of the financial asset give rise on specified dates to cash flows that
are solely payments of principal and interest on the principal amount outstanding.

Exceptions to classification of financial assets:

1 When the entity makes an irrevocable designation to classify an investment in debt instruments at

Measurement:

Subsequent Interest
Classification Initial measurement measurement UG/L Income
1) FA at AC FV plus TC AC N/A PV*EIR
2) FA at FVOCI FV plus TC FV OCI PV*EIR
3) FA at FVPL FV FV PL FA*NR
 t t
m en en MATURITY
y y m
Pa Pa DATE
s s

MATURITY
VALUE

> Market rate

< Market rate

= Market rate

CCF Test
"SPPI"
"SPPI"
N/A
ld to collect or to sell"

"Hold to collect"
ancial assets. "Hold to collect & sell"
financial assets. "Held for trading"

ates to cash flows that

nt outstanding. "SPPI"

estment in debt instruments at FVPL

End of year adjustments

Amortization
Amortization and FV adjustment
FV adjustment
Problem 1 Computation of Purchase Price
SEMI-ANNUAL stated rate 5%, EIR 4%, 10 periods
PV factor
a) PV of Principal PV of 1 (1.04)^-10 5,000,000 0.6756
PV of Interest PV oa 1-(1.04)^-10 /0.04 250,000 8.1109
PV of the bond (Purchase price)
1 1 31
3 3
30 31 un ec 0
ec un ec ec TJ TD 3
TD TJ TD Jun TD PM 30 PM J un
PM PM 30 PM PM
T PM P MT

250 250 250K 250K

250K 250K 250K 250K
K K
June June 30 June June
30 June 30
2021 30 30 2024
2020 2022 2023
Debt Investment 5,405,725
Cash 5,405,725

ANNUALY stated rate 6%, EIR 8%, 10 periods

PV factor
b) PV of Principal PV of 1 (1.08)^-10 10,000,000 0.4632
PV of Interest Pvoa 1-(1.08)^-10 / 0.08 600000 6.7101
PV of the bond (Purchase price)

3 0 30 0 30 3 0 3 0
un un un un
3 un un un un
TJ TJ TJ TJ TJ TJ TJ TJ
PM PM M
P 30 PM M
P 30 PM PM
PM

600K 600K 600 600 600K 600 600K 600K

K K K
Jun 30 Jun 30 Jun 30 Jun 30 Jun 30 Jun 30 Jun 30 Jun 30
Jul 1 Y8
Y1 Y1 Y2 Y3 Y4 Y5 Y6 Y7

Debt Investment 8,658,060

Cash 8,658,060
 To compute PV:
PV
3,378,000 PV of 1 1) Lumpsum payment
2027725 2) Series but unequal payments
5,405,725 premium NR>EIR
0 c3
1 PV of OA 1) Series and equal payments
3 e un
J un
MTD TJ
P MT P M
P 30

5M
* First payment after the lapse of a period
250K 250K 250K
June 30 June 30
2024 2025

PV of AD 1) Series and equal payments

* First payment is made immediately
PV
4632000
4026060 5 periods 10 June and Dec
8658060 discount NR<EIR 8% 4%
(1.04)^-10
0
un
3 30 un
TJ un TJ
TJ PM 30
PM PM

10M
600K
Formula:
600K 600K
Jun 30 Jun 30 Jun 30
Y8 Y9 Y10
PV of 1
PV =
PV of Ordinary annuity
PV =
PV of Annuity due
PV =
y
Problem 2 Debt Investment at Amortized Cost

a) Amortization Table

Interest Interest Carrying

Date received revenue Amortization value/PV
Jan 1, Y1 8,274,646
Dec 31, Y1 1200000 1158450 41550 8,233,096
Dec 31, Y2 1200000 1152634 47366 8,185,730
Dec 31, Y3 1200000 1146002 53998 8,131,732
Dec 31, Y4 1200000 1138442 61558 8,070,175
Dec 31, Y5 1200000 1129825 70175 8,000,000

b) Journal Entries

Jan 1, Y1 Debt Investment at AC 8,274,646

Cash 8,274,646

Dec 31, Y1 Cash 1,200,000

Debt Investment at AC 41,550
Interest revenue 1,158,450

Dec 31, Y2 Cash 1,200,000

Debt Investment at AC 47366
Interest revenue 1,152,634
SAME Y3, Y4

Dec 31, Y5 Cash 1,200,000

Debt Investment at AC 70175
Interest revenue 1,129,825

Cash 8,000,000
Debt Investment at AC 8,000,000
Problem 3 Classification of Debt Investment

INITIAL & SUBSEQUENT MEASUREMENT

a) Journal Entries

Amortized cost (IM - PP +TC; SM - AC)

Y1 Y1
Jun-01 Debt Investments at AC 3,691,500 Jun-01
Cash 3,691,500

Dec-01 Cash 160,000 Dec-01

Debt Investments at AC 24,575
Interest revenue 184,575

Dec-31 Interest receivable 26667 Dec-31

Debt Investments at AC 4301
Interest revenue 30967
Dec-31

Y2 Y2
Jun-01 Cash 160,000 Jun-01
Debt Investments at AC 21,503
Interest revenue 154836
Interest receivable 26667
Dec-01
Dec-01 Cash 160000
Debt Investments at AC 27094
Interest revenue 187094 Dec-31

Dec-31 Interest receivable 26667

Debt Investments at AC 4741 Dec-31
Interest revenue 31408

DERECOGNITION
b) Journal Entries

Amortized cost

Y4
Nov-01 Interest receivable 133,333 Nov-01
Debt investment at AC 27,444
Interest revenue 160777

Nov-01 Cash 3,925,000

Loss on sale of Debt Investment 94,434
Debt Investment at AC 3,886,101
Interest receivable 133,333
FVPL (IM-PP; SM - FV)
Y1
Debt Investments at FVPL 3,691,500 Jun-01
Cash 3,691,500

Cash 160,000 Dec-01

Interest revenue 160,000
(4,000,000*8%*6/12)

Interest receivable 26,667 Dec-31

Interest revenue 26,667

Debt Investments at FVPL 188,500

Unrealized gain/loss on debt investments - PL 188,500 Dec-31
(3,880,000-3,691,500)

Cash 160,000 Y2
Interest receivable 26,667 Jun-01
Interest revenue 133,333

Cash 160,000
Interest revenue 160,000
Dec-01
Interest receivable 26,667
Interest revenue 26,667

Debt Investments at FVPL 80,000 Dec-31

Unrealized gain/loss on debt investments - PL 80,000

Dec-31

Y3 (for your reference)

Jun-01
FVPL

Cash 3,925,000 Dec-01

Loss on sale of Debt Investments -PL 128,333
Debt Investment at FVPL 3,920,000
Interest revenue 133333
Dec-31

Dec-31
Y4

Jun-01

Y4 (derecognition)
Nov-01

Nov-01

Nov-01

Nov-01

Alternatively, same with our original en

Nov-01

Nov-01

Nov-01
 PP 3,691,500
TC 100,000 Amortization Table (modified)
Given:

FVOCI (IMI- PP +TC; SM - FV) annual

annual
Debt Investment at FVOCI 3,691,500
Cash 3,691,500

Cash 160,000
Debt Investment at FVOCI 24575
Interest revenue 184575 Date
Jun 1, Y1
Interest recievable 26667 Dec.1, Y1
Debt Investment at FVOCI 4301 Jun 1,Y2
Interest revenue 30967 Dec.1, Y2
Jun 1, Y3
Debt Investment at FVOCI 159,624 Dec.1, Y3
Unrealized gain or loss on debt investment - FVOCI 159,624 Jun 1, Y4
(3,880,000-CA, Dec 31 Y1 3,720,376) Sold! Dec.1, Y4
Jun 1, Y5
Cash 160,000
Debt investment at FVOCI 21503 AC
Interest receivable 26667
Interest revenue 154836

Cash 160,000
Debt investment at FVOCI 27094
Interest revenue 187094

Interest receivable 26667

Debt Investments at FVOCI 4741
Interest revenue 31408

Debt Investments at FVOCI 26,661

Unrealized gain or loss on Debt Investment - FVOCI 26,661
(3,960,000- CA Dec 31, Y2 3,773,714)-159,624
Y3 (for your reference)
Cash 160,000 FVPL
Debt investment at FVOCI 23707
Interest receivable 26667
Interest revenue 157041

Cash 160,000
Debt investment at FVOCI 29871
Interest revenue 189871
FVOCI
Interest receivable 26667
Debt Investments at FVOCI 5227
Interest revenue 31894

Unrealized gain or loss on Debt Inves 98,806

Debt Investments at FVOCI 98,806
 (3,920,000- CA Dec 31, Y2 3,832,520)-186286

Cash 160,000
Debt investment at FVOCI 26137
Interest receivable 26667
Interest revenue 159471

FVOCI
Y4 (derecognition)
Interest receivable 133,333
Debt Investment at FVOCI 27,444
Interest revenue 160,777 same with AC

Unrealized gain or loss on Debt Inves 181,915

Debt Investments at FVOCI 181,915 FV adjustment at date of sale

Cash 3,925,000
Debt Investment at FVOCI 3,791,667 there is no loss if we prepare FV adjustment e
Interest receivable 133,333

Loss on sale of Investment 94,434 For this entry, refer to page 174
Unrealized gain or loss on Debt Investment - FVOCI 94,434

*Unrealized Gain or Loss - OCI is recycled to profit or loss

Alternatively, same with our original entry a while ago

Interest receivable 133,333

Debt Investment at FVOCI 27,444
Interest revenue 160,777

Unrealized gain or loss on Debt Inves 181,915

Debt Investments at FVOCI 181,915

Cash 3,925,000
Loss on sale of Investment 94,434
Debt Investment at FVOCI 3,886,101
Interest receivable 133,333
mortization Table (modified)

Principal 4000000 Y5
Stated interest rate 8%
Effective interest rate 10% discount
Term 4 years (Jun1Y1-June1Y5)
Purchase Price 3,691,500
Installment payment Jun-30
of interest Dec-01
P x 4% PV x 5%
Interest received Interest revenue Amortization Carrying amount Market Value Dec-31
3,691,500 FV
160000 184575 24575 3,716,075 at 97% 3,880,000
160000 185804 25804 3,741,879
160000 187094 27094 3,768,973 at 99% 3,960,000
160000 188449 28449 3,797,421
160000 189871 29871 3,827,292 at 98% 3,920,000
160000 191365 31365 3,858,657 Nov-01
160000 192933 32933 3,891,590 3,791,667
160000 194579 34579 3,926,169

Nov 1 Y4 Sale

Selling price 3,925,000

Accrued interest 133,333 June 1, Y4-Nov.1,Y4) 5 mos
Net Proceeds for the P 3,791,667
CA, Nov. 1, Y4 3,886,101
Gain or (loss) on sale - 94,435

CA, Jun 1, Y4 3,858,657

Amortization, Nov 1 27,444 (32,933*5/6)
CA, Nov. 1, Y4 3,886,101

Selling price 3,925,000

Accrued interest 133,333
Net Proceeds for the P 3,791,667
CA, Nov 1 Y4 3,920,000 Y3 FV
Loss on sale - 128,333

Selling price 3,925,000

Accrued interest 133,333
Net Proceeds for the P 3,791,667
CA, Nov 1 Y4 3,886,101
Gain or (loss) on sale - 94,435
ent at date of sale

loss if we prepare FV adjustment entry at the date of sale :)

or this entry, refer to page 174

 presented in
presented in Statement of PL
Financial Position and OCI as
as part of "Other "Other
Components of Comprehensice
Equity" income "
Dec-31 Accum. gain/loss -
CA OCI UG/L-OCI
3,720,376 159,624 159,624

3,773,714 186,286 26,661

3,832,520 87,480 - 98,806

Nov-01 date of sale
3,886,101 - 94,435 - 181,915
Problem 4 Classification of Debt Investment

a) Journal Entries

Amortized cost (IM - PP +TC; SM - AC)

Y1 Y1
Jan-01 Debt Investments at AC 1,063,394 Jan-01
Cash 1,063,394

Dec-31 Cash 120,000 Dec-31

Debt Investments at AC 13,661
Interest revenue 106,339
Y2 Dec-31
Dec-31 Cash 120000
Debt Investments at AC 15027
Interest revenue 104973
Y2
Y3 Dec-31
Apr-01 Interest receivable 30,000
Debt Investments at AC 4,132
Interest revenue 25,868 Dec-31

Cash 636,000
Loss on sale 12,345
Debt Investments at AC 618,345 Y3
Interest receivable 30,000 Apr-01

Dec-31 Cash 36000

Debt Investments at AC 4,959 Apr-01
Interest revenue 31,041

To compute gain or loss: Dec-31

Selling Price - Principal 606000

CA, April 1 Y3 618,345
Gain or loss on sale - 12,345
FVPL (IM-PP; SM - FV)
Y1
Debt Investments at FVPL 1,063,394 Jan-01
Cash 1,063,394

Cash 120,000 Dec-31

Interest revenue 120,000

Debt Investments at FVPL 16,606

Unrealized gain or loss - PL 16,606 Dec-31
(1,080,000-1,063,394)

Cash 120,000 Y2
Interest revenue 120,000 Dec-31

Unrealized gain or loss - PL 20,000

Debt Investments at FVPL 20,000
(1,060,000-1,080,000) Dec-31

Interest receivable 30,000

Interest revenue 30,000 Y3
Apr-01
Cash 636,000
Loss on sale 30,000
Debt Investments at FVPL 636000
Interest receivable 30,000 Apr-01

Cash 36,000
Interest revenue 36,000

To compute gain or loss:

Selling Price - Principal 606000

CA, April 1 Y3 636,000
Gain or loss on sale - 30,000 Dec-31

Dec-31
 Amortization Table (modified)
Given:

FVOCI (IMI- PP +TC; SM - FV) annual

annual
Debt Investments at FVOCI 1,063,394
Cash 1,063,394

Cash 120,000
Debt Investments at FVOCI 13,661
Interest revenue 106,339 Date
Jan 1, Y1
Debt Investments at FVOCI 30,267 Dec.31, Y1
Unrealized gain or loss - OCI 30,267 Dec.31, Y2
(1,080,000-1,049,733) Dec.31, Y3
Dec.31, Y4

Cash 120,000
Debt Investments at FVOCI 15,027
Interest revenue 104,973

Debt Investments at FVOCI 4,973

Unrealized gain or loss - OCI 4,973
(1,060,000-1,034,707)-30,267

Interest receivable 30,000

Debt Investments at FVOCI 4,132
Interest revenue 25,868

Cash 636,000
Loss on sale 12,345
Debt Investment at FVOCI 618,345
Interest receivable 30,000 Do not revalue the bonds anymore if
This is simplier. :)

To compute gain or loss:

Selling Price - Principal 606,000

CA, April 1 Y3 618,345
Gain or loss on sale - 12,345

Cash 36,000
Debt Investments at AC 4,959
Interest revenue 31,041

Unrealized gain or loss - OCI 12,423

Debt Investments at FVOCI 12,423
FV of remaining bonds at Dec 31 416,000
CA of remaining bonds at Dec 31 407,271
Unrealized gain -OCI 8,729
mortization Table (modified)

Principal 1,000,000 Y5
Stated interest rate 12%
Effective interest rate 10% premium
Term 4 years (Jan 1 Y1-Dec 31 Y4)
Purchase Price 1,063,394
Installment payment Dec-31
of interest
P x 12% PV x 10%
Interest received Interest revenue Amortization Carrying amount Market Value Dec-31
1,063,394 FV
120,000 106,339 13,661 1,049,733 at 108% 1,080,000
120,000 104,973 15,027 1,034,707 at 106% 1,060,000
120,000 103,471 16,529 1,018,177 at 104% 416,000
120,000 101,823 18,177 1,000,000
date of sale 606,000

Dec 31, Y2 1,034,707

Amortization of premium 4,132 3 mos
CA, April 1, Y3 1,030,574
CA of sold bonds 618,345 only 600,000 bonds are sold
Remaining bonds as of Apr 1, Y3 412,230
Interest income 30,917
Interest collection 36,000
CA of remaining bonds 407,147

o not revalue the bonds anymore if there is only partial sale.

his is simplier. :)
 presented in presented as
Financial Position "Other
as part of "Other Comprehensice
Components of income "
Equity"
Dec-31 Accum. gain/loss -
CA OCI UG/L-OCI
1,049,733 30,267 30,267
1,034,707 25,293 - 4,973
407,271 8,729 - 16,564

618,345 - 12,345

onds are sold