CHAPTER 15: FINANCIAL ASSET AT FAIR VALUE

INVESTMENTS

-International Accounting Standards Board, “Investments are assets held by an entity for the
accretion of wealth through distribution such as interest, royalties, dividends and rentals, for capital
appreciation or for other benefits to the investing entity such as those obtained through trading
relationships.

PURPOSES OF INVESTMENTS

a. For accretion of wealth – interest, dividends, royalties, and rents.

b. For capital appreciation – gold, diamonds, and other precious commodities
c. For ownership control – subsidiaries and associates
d. For meeting business requirements – sinking fund, preference share redemption fund, plant
expansion fund and other noncurrent fund
e. For protection – life insurance contract in the form of cash surrender value

EXAMPLES OF INVESTMENTS

1. Trading securities or financial assets held for trading

2. Financial asset at fair value through other comprehensive income
3. Investment in nontrading equity securities
4. Investment in bonds or financial asset at amortized cost
5. Investment in associate
6. Investment in subsidiary
7. Investment property
8. Investment in fund
9. Investment in joint venture

STATEMENT CLASSIFICATION

*Investments are classified either as current or noncurrent assets.

CURRENT INVESTMENTS

-nature readily realizable and are intended to be held for not more than one year.

EXAMPLE: trading securities are normally classified as current assets because these investments
are expected to be realized within twelve months after the end of reporting period.

NONCURRENT OR LONG-TERM INVESTMENTS

-more than one year or are not expected to be realized within twelve months after the end of
the reporting period.

FINANCIAL ASSET
 a. Cash
b. A contractual right to receive cash or another financial asset from another entity
c. A contractual right to exchange financial instrument with another entity under conditions that
are potentially favourable
d. An equity instrument of another entity.

EXAMPLES OF FINANCIAL ASSETS

CASH OR CURRENCY

– medium of exchange and the basis on which all transactions are measured and recognized in
financial statements.

DEPOSIT OF CASH

– represents the contractual right of the depositor to obtain cash from the bank or to draw a
check against the balance in favour of a creditor in payment of a financial liability.

-Gold bullion is not a financial asset, although it is very precious, the gold is a commodity.

CONTRACTUAL RIGHT TO RECEIVE CASH

– trade accounts receivable, notes receivable, and loans receivable.

IN THE CASE OF EXCHANGES OF FINANCIAL INSTRUMENTS WITH ANOTHER ENTITY

-conditions are potentially favourable when such exchanges will result to gain or additional cash
inflow to the entity.

-An example of a favourable condition is an option held by the holder to purchase shares of
another entity at less than market price.

EQUITY INSTRUMENTS

-trading securities

NOT CONSIDERED FINANCIAL ASSETS

INTANGIBLE ASSETS AND PHYSICAL ASSETS

-creates an opportunity to generate an inflow of cash or another financial asset but it does not
give rise to a present right to receive cash or another financial asset.

PREPAID EXPENSES

-future economic benefit is the receipt of goods or services

LEASED ASSETS
 -control of such assets does not give rise to a present right to receive cash or another financial
asset.

CLASSIFICATION OF FINANCIAL ASSETS

UNDER PFRS 9, PARAGRAPH 4.1.1

1. Financial assets at fair value through profit or loss – include both equity securities and debt
securities
2. Financial assets at fair value through other comprehensive income – include both equity
securities and debt securities
3. Financial assets at amortized cost – include only debt securities

The classification depends on the BUSINESS MODEL for managing financial assets which may be:

a. Realize fair value changes

b. Collect contractual cash flows
c. Collect contractual cash flows and sell the investment

WHAT IS AN EQUITY SECURITY?

EQUITY SECURITY

-representing ownership shares and right, warrants or options to acquire or dispose of

ownership shares at a fixed or determinable price.

-represents an ownership interest in an entity

OWNERSHIP SHARES

-ordinary shares, preference shares, and rights or options to acquire ownership shares.

*The owners of equity securities are legally known as shareholders.

SHARE

-ownership interest or right of a shareholder in an entity.

*The share is evidenced by an instrument called share certificate.

*Equity securities do not include redeemable preference shares, treasury shares and convertible debt.

WHAT IS A DEBT SECURITY?

DEBT SECURITY

-represents a creditor relationship with an entity.

-has a maturity date and a maturity value.

EXAMPLES OF DEBT SECURITIES INCLUDE THE FOLLOWING:

a. Corporate bonds
b. BSP treasury bills
c. Government securities
d. Commercial papers
e. Preference shares with mandatory redemption date or are redeemable at the option of the
holder

INITIAL MEASUREMENT OF FINANCIAL ASSET

PFRS 9, PARAGRPAH 5.1.1

-provides that at initial recognition, an entity shall measure a financial asset at fair value plus, in
the case of financial asset not at fair value through profit or loss, transaction costs that are directly
attributable to the acquisition of the financial asset.

FINANCIAL ASSET IS RECOGNIZED INITIALLY AT FAIR VALUE

*Transaction costs that are directly attributable to the acquisition of the financial assets measured at
fair value through other comprehensive income shall be capitalized as cost of the financial asset.

*If the financial asset is held for trading or if the financial asset is measured at fair value through profit r
loss, transaction costs are expensed outright.

SUBSEQUENT MEASUREMENT

PFRS 9, PARAGRAPH 5.2.1, provides that after initial recognition, an entity shall measure a financial
asset at:

a. Fair value through profit or loss (FVPL)

b. Fair value through other comprehensive income (FVOCI)
c. Amortized Cost

FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS

The following financial assets shall be measured at “fair value through profit or loss”:

1. Trading Securities by requirement, meaning, required by the standard.

2. Quoted Equity Instruments by consequence in accordance with Application Guidance B5.1.14 of
PFRS 9.
3. Irrevocably Designated by irrevocable designation or by option in accordance with Paragraph
4.1.5 of PFRS 9
4. Debt Investments by default in accordance with PFRS 9, paragraph 4.1.4.

FINANCIAL ASSET HELD FOR TRADING

APPENDIX A OF PFRS 9

-Financial assets held for trading or trading securities are debt and equity securities that are
purchased with the intent of selling them in the “near future” or very soon.

*Financial assets held for trading or trading securities are normally classified as current assets.

EQUITY INVESTMENT AT FAIR VALUE THROUGH OCI

PFRS 9, PARAGPRAH 5.7.5

-provides that an entity may make an irrevocable election to present in other comprehensive
income or OCI subsequent changes in fair value of an investment in equity instrument that is not held
for trading.

*The amount recognized in other comprehensive income is not reclassified to profit or loss under any
circumstances.

ON DERECOGNITION

-the amount should be transferred to retained earnings.

DEBT INVESTMENT AT AMORTIZED COST

PFFRS 9, PARAGRAPH 4.1.2

-The business model is to collect contractual cash flows if the contractual cash flows are solely
payments of principal and interest.

DEBT INVESTMENT AT FAIR VALUE THROUGH OCI

PFRS 9, PARAGRAPH 4.1.2A

-The business model includes selling or trading the financial asset in addition to collecting
contractual cash flows.

*Interest Income is recognized using the effective interest method as in amortized cost measurement

ON DERECOGNITION

-the cumulative gain and loss recognized in other comprehensive income shall be reclassified to
profit or loss.

SUMMARY OF MEASUREMENT RULES

MEASUREMENT OF EQUITY INVESTMENTS

1. Held for trading – at fair value through profit or loss

2. Not held for trading – as a rule, at fair value through profit or loss
 3. Not held for trading – at fair value through other comprehensive income by irrevocable election.
4. All other investments in quoted equity instruments – at fair value through profit or loss
5. Investments in unquoted equity instruments – at cost
6. Investments of 20% to 50% - equity method of accounting
7. Investments of more than 50% - consolidation method to be taken up in an advanced
accounting course.

MEASUREMENT OF DEBT INVESTMENTS

1. Held for trading – at fair value through profit or loss

2. Held for collection of contractual cash flows – at amortized cost
3. Held for collection of contractual cash flows – at fair value through profit or loss by irrevocable
designation or fair value option
4. Held for collection of contractual cash flows and for sale of the financial asset – at fair value
through other comprehensive income
5. Held for collection of contractual cash flows and for sale of the financial asset – at fair value
through profit or loss by irrevocable designation or fair value option.

FAIR VALUE

APPENDIX A OF PFRS 9 IN CONJUNCTION WITH PFRS 13

-Fair value of an asset is the price that would be received to sell an asset in an orderly
transaction between market participants at the measurement date.

BEST EVIDENCE OF FAIR VALUE IN DESCENDING HIERARCHY

a. Quoted price of identical asset in an active market

b. Quoted price of similar asset in an active market
c. Quoted price of identical and similar asset in an inactive market

QUOTED PRICE

-the fair value of securities is the quoted price in the securities market, for example, the
Philippine Stock Exchange.

*If the quoted price pertains to a share or equity security, it means pesos per share.

*If the quoted price pertains to a bond or debt security, it means percent of the face amount of the
bond.

GAIN AND LOSS – FINANCIAL ASSET AT FAIR VALUE

*Unrealized gain and loss on financial asset held for trading and other financial asset measured at fair
value are reported in profit or loss.

*Unrealized gain and loss arise from investments that are reported at fair value.
*In determining fair value, no deduction is made for transaction costs that may be incurred on disposal
of the financial asset.

*If the fair value is higher than carrying amount, the difference is unrealized gain.

*If the fair value is lower than carrying amount, the difference is an unrealized loss.

*Gain and loss that result from actually selling the investments are known as realized gain and realized
loss.

GAIN AND LOSS – FINANCIAL ASSET AT AMORTIZED COST

*Unrealized gain and loss on financial asset at amortized cost are not recognized simply because such
investments are not reported at fair value.

*PFRS 9, PARAGRAPH 5.7.2, provides that gain and loss on financial asset measured at amortized cost
shall be recognized in profit or loss when the financial asset is derecognized, sold, impaired or
reclassified, and through the amortization process.

ILLUSTRATION-TRADING SECURITIES (TS)

FVPL

-financial asset is measured at fair value through profit or loss.

*The unrealized gain is classified in the income statement as other income.

*The unrealized loss is reported in the income statement as other expense.

ANOTHER ILLUSTRATION – TRADING SECURITIES

PFRS 9, PARAGRAPH 3.2.12

-provides that on derecognition of a financial asset the difference between the carrying amount
and the consideration received shall be recognized in profit or loss.

EQUITY INVESTMENT AT FAIR VALUE THROUGH OCI

*At initial recognition, an entity may make an irrevocable election to present in other comprehensive
income subsequent changes in value of an investment in nontrading equity instrument.

FVOCI

-financial asset is measured at fair value through other comprehensive income

UNDER PFRS 9, PARAGRAPH 5.1.1

-a financial asset measured at fair value through other comprehensive income shall be
recognized initially at fair value plus transaction cost directly attributable to the acquisition.
*FVOCI is normally classified as noncurrent asset.

SALE OF EQUITY INVESTMENT – FVOCI

IN ACCORDANCE WITH PFRS 9, PARAGRAPH 5.7.1B

-Gain or loss on disposal of equity investment measured at fair value through other
comprehensive income is recognized directly in retained earnings.

IN ACCORDANCE WITH PFRS 9 APPLICATION GUIDANCE, PARAGRAPH 5.7.1

-The cumulative gain or loss previously recognized in other comprehensive income is also
transferred to retained earnings.

*The cumulative amount recognized in other comprehensive income is not reclassified to profit or loss
under any circumstances.

SALE OF EQUITY INVESTMENT – FVOCI

*The net effect on retained earnings on the disposal of equity investment at FVOCI is simply the
difference between sale price and the historical cost of the investment.

REMAININGG SECURITIES

*The cumulative unrealized gain is always the difference between the original cost and current market
value.

IMPAIRMENT – EQUITY INVESTMENTS AT FAIR VALUE

*It is not necessary to assess financial assets measured at fair value through profit or loss and equity
investments measured at fair value through other comprehensive income for impairment.

IMPAIRMENT – DEBT INVESTMENTS

PFRS 9, PARAGRAPH 5.5.1, provides that an entity shall recognize expected credit loss on:

a. Debt investment measured at amortized cost

b. Debt investment measured at fair value through other comprehensive income

PARAGRAPH 5.5.3

-provides that an entity shall measure the loss allowance for a financial instrument at an amount
equal to the lifetime expected credit loss if the credit risk on that financial instrument has increased
significantly since initial recognition.

CREDIT LOSS

-present value of all cash shortfalls.

EXPECTED CREDIT LOSS

-an estimate of credit loss over the life of the financial instrument.

*The amount of impairment loss can be measured as the difference between the carrying amount and
the present value of estimated future cash flows discounted at the original effective rate.

CHAPTER 16: EQUITY INVESTMENTS (DIVIDENS, SHARE SPLIT AND SHARE RIGHT)

INVESTMENT CATEGORIES

a. Trading securities or financial assets at FVPL

b. Financial assets at FVOCI
c. Investment in associate
d. Investment in subsidiary
e. Investment in unquoted equity instruments

ACQUISITION OF EQUITY INVESTMENTS

*When a financial asset is recognized initially, an entity shall measure it at fair value plus transaction
costs that are directly attributable to the acquisition.

*However, transaction costs directly attributable to the acquisition of financial asset held for trading or
financial asset at fair value through profit or loss shall be expensed immediately.

LUMP SUM ACQUISITION

*If two or more equity securities are acquired at a single cost or lump sum, the single cost is allocated to
the securities acquired on the basis of their fair value.

*If only one security has a known market value, an amount is allocated to the security with a known
market value equal to its market value.

*The remainder of the single cost is then allocated to the other security with no known market value.

SALE OF EQUITY INVESTMENTS

PFRS 9, PARAGRAPH 3.2.12

-provides that on derecognition of a financial asset measured at fair value through profit or loss,
the difference between the consideration received and the carrying amount shall be recognized in profit
or loss.

*When equity shares are of the same class acquired on different dates at different costs, a problem will
arise as to the determination of cost of shares sod when only a portion is subsequently sold.
*The entity shall determine the cost of the shares sold using either the FIFO or average cost approach.

CASH DIVIDENDS

*If the equity securities are measured at fair value through profit or loss, or at fair value through other
comprehensive income or at cost, dividends earned are considered as income.

a. When the cash dividends are earned but not received:

Dividends receivable xx

Dividend income xx

b.When the cash dividends are subsequently received:

Cash xx

Dividends receivable xx

*The cash dividends do not affect the investment account.

WHEN ARE DIVIDENDS CONSIDERED EARNED?

a. Date of declaration – payment of dividends is approved by the Board of Directors

b. Date of record – the stock and transfer book of the corporation is closed for registration.
c. Date of payment – dividends declared shall be paid.

*Between the date of declaration and the record date, the shares are selling “dividend –on”

*Between the date of record and the date of payment, the shares are selling “ex-dividend” which means
that the shares can be sold, and still the original shareholder has the right to receive the dividends on
payment date.

WHEN TO RECOGNIZE DIVIDENDS AS INCOME

*Dividends shall be recognized as revenue when the shareholder’s right to receive payment is
established.

*The dividends shall be recognized as revenue on the date of declaration.

*When shares are sold “dividend-on “and the dividend accrued is specifically included in the sale price,
that portion of the sale price pertaining to the accrued dividend should be credited to dividend income.

*Only the reminder of the sale price should be used as basis for determining gain or loss on the sale of
the investment.

PROPERTY DIVIDENDS

PROPERT DIVIDENDS OR DIVIDENDS IN KIND

 -are dividends in the form of property or noncash assets.

-also considered as income and recorded at fair value.

Noncash assets xx

Dividend income xx

LIQUIDATING DIVIDENDS

LIQUIDATING DIVIDENDS

-represent return of invested capital, and therefore, are not income. The payment may be in the
form of cash or noncash assets.

*The liquidating dividend is recognized as return of investment.

Cash or other appropriate amount xx

Investment in shares xx

*When dividends are received form a wasting asset corporation, the dividends are designated as partly
income and partly return of capital.

*When liquidating dividends exceed the cost of investment, the difference is credited to gain on
investment.

*On the other hand, when liquidation is completed and the carrying amount of the investment is not
fully recovered, the balance is written off as a loss.

SHARE DIVIDENDS OR STOCK DIVIDENDS

SHARE DIVIDENDS

-form of the issuing entity’s own shares. The IAS term for share dividend is “bonus issue”.

*Shares of another entity declared as dividends are not share dividends but property dividends.

KINDS OF SHARE DIVIDENDS

*Share dividends whether of the same class or different are not income. The reason is that there are no
additional assets received by the entity.

*The shareholder receives additional shares but still has the same proportionate equity interest in the
entity. The shareholder may have more shares but at reduced market value.

SHARE DIVIDENDS OF SAME CLASS

SHARE DIVIDENDS OF SAME CLASS

 -are recorded only be means of memorandum entry on the part of the shareholder. An example
of a memorandum entry for the receipt of share dividends is:

“Received 2,000 shares representing 20% share dividend on 10,000 original shares held. Shares
now held, 12,000 shares.”

*Share dividends do not affect the total cost of the investment but reduce the cost of the investment
per share.

*The original cost after the share dividend will now apply to a greater number of shares, original shares
plus those received as share dividends.

SHARE DIVIDENDS DIFFEREN FROM THOSE HELD

*A shareholder may receive a share dividend which is different from the original shares.

*Again, share dividends of different class are not income.

*However, the original cost of the investment is apportioned between the original shares and the share
dividends on the basis of market value of each at the date of receipt.

SHARES RECEIVED IN LIEU OF CASH DIVIDENDS

*When cash dividends are declared and received, it is without doubt that they are income. A problem
will arise when shares are received in lieu of cash dividends declared.

*It is generally accepted that shares received in lieu of cash dividends are income at fair value of the
shares received. The reason is that such shares are in effect property dividends.

*In the absence of fair value of the shares received, the income is equal to the cash dividends that
would have been received.

CASH RECEIVED IN LIEU OF SHARE DIVIDENDS

*When share dividends are declared and received, unquestionably, they are not income. A problem will
arise when cash is received in lieu of share dividends.

*The “as if” approach is followed. This means that the share dividends are assumed to be received and
subsequently sold at the cash received. Therefore, a gain or loss may be recognized.

BIR APPROACH

*Under the ruling of the Bureau of Internal Revenue, all cash received, whether originally designated as
cash dividend or share dividend, is recognized as income.

*However, the “as if” approach is theoretically sound and should be followed for financial accounting
purposes.
SHARE SPLIT

*A corporation may restructure its capital by effecting a change in the number of shares without
capitalizing retained earnings or changing the amount of its legal capital. This restructuring is known as
share split.

SHARE SPLIT

-may be split up or split down.

SPLIT UP

-a transaction whereby the outstanding shares are called in and replaced by a larger number,
accompanied by a reduction in the par or stated value of each share.

SPLIT DOWN

-a transaction whereby the outstanding shares are called in and replaced by smaller number,
accompanied by an increase in the par or stated value.

*Share split does not affect the total cost of investment.

*Only a memorandum entry is made to record the receipt of new shares by virtue of share split.

*”Received 20,000 new shares as a result of a 2-for 1 split of 10,000 original shares.”

SPECIAL ASSESSMENTS

SPECIAL ASSESSMENTS

-additional capital contributions of the shareholders/.

*On the part of the shareholders, special assessments are recorded as additional cost of the investment.

REDEMPTION OF SHARES

*On the part of the shareholder, the redemption of share is recorded in the same manner as sale of
share. The redemption price is treated as the sale price.

SHARE RIGHT OR STOCK RIGHT

SHARE RIGHT OR PREEMPTIVE RIGHT

-a legal right granted to shareholders to subscribe for new shares issued by a corporation at a
specified price during a definite period.

*The IAS terms for share right is “right issue”.

*A share right is inherent in every share. A shareholder received one right for every share owned.
*A share right is valuable to a shareholder because the price at which the new shares are sold is
generally below the prevailing market price.

*The purpose of the share right is to give the shareholders the chance to preserve their equity interest
in the corporation.

*The ownership of share rights is evidenced by instruments or certificates called share warrants.

ACCOUNTING FOR SHARE RIGHTS

*PFRS 9 does not address this accounting issue categorically.

There are two schools of thought on the matter, namely:

1. Share rights are accounted for separately.

2. Share rights are not accounted for separately.

ACCOUNTED FOR SEPARATELY

*Under the Application Guidance B5.4.14 of PFRS 9, all investments in equity instruments and contracts
on those instruments must be measured at fair value.

*Share rights are a form of equity instrument and therefore shall be measured initially at fair value.

*In other words, a portion of the carrying amount of the original investment in equity shares is allocated
to the share rights at an amount equal to the fair value of the share rights at the time of acquisition.

*Share rights are normally classified as current assets if its rights are accounted for separately.

NOT ACCOUNTED FOR SEPARATELY

*Share rights may be recognized as embedded derivative but not a “stand-alone” derivative.

EMBEDDED DERIVATIVE

-a component of a hybrid or combined contract (host contract) with the effect that some of the
cash flows of the combined contract vary in a way similar to a stand-alone derivative.

PFRS 9, PARAGRAPH 4.3.3

-provides that an embedded derivative shall be separated from the host contract and accounted
for separately under certain conditions.

*If the host contract is a financial asset, the embedded derivative is not separated.

*The share right as an embedded derivative is not accounted for separately because the host contract
“investment in equity instrument” is a financial asset.

APPROACH TO BE FOLLOWED
PFRS 9, PARAGRAPH 4.3.4

-states that this standard does not address whether an embedded derivative shall be presented
separately in the statement of financial position.

*The authors strongly believe that the second approach not accounted for separately stand on solid and
authoritative ground.

EXAMPLE OF A FORMAL ANNOUNCEMENT OF SHARE RIGHT

DATE OF DECLARATION

-issuance of share rights is approved by the Board of Directors.

DATE OF RECORD

-the stock and transfer of book of the entity will be closed for registration and only those
shareholders registered as of the record date are entitled to receive share rights.

*It is very important to note that the date of record is also the date of issuing the share warrants

EXPIRATION DATE

-the share rights shall be exercised. After such date, the share rights would be worthless.

BETWEEN THE DATE OF DECLARATION AND DATE OF RECORD

*During this period the shares are considered to be selling right-on. This means that the share and the
right are inseparable and are treated as one.

*Accordingly, in the event of subsequent sale prior to the record date, the difference between the sale
price and the carrying amount of the investment is simply considered gain or loss on sale of investment.

BETWEEN THE DATE OF RECORD AND EXPIRATION DATE

*On the date of record, the warrants evidencing the share rights are issued to the shareholders. On or
after this date, the shares are said to be selling ex-right.

ILLUSTRATION – ACCOUNTED FOR SEPARATELY

*Note also that the original investment account is credited when the rights are received because the
share rights are “derived” from the original investment.

*Some academicians propose that the fair value of the share rights should be credited to unrealized
gain.

*If the share rights do not have a market value, the theoretical or parity value of the share rights is used
in measuring the fair value of the share rights.
EXERCISE OF SHARE RIGHTS

*When share rights are exercised, the cost of the new investment includes the subscription price and
the cost of the share rights exercised.

*When an investor is entitled only to a fraction of a share, the investor may purchase additional rights in
order to acquire one full share.

*In such a case, the cost of the new investment includes the subscription price, cost of share rights
originally and cost of share rights purchased.

SALE OF SHARE RIGHTS

*The share rights are financial assets separate from the original shares. Accordingly, the share rights can
be sold independently of the original investment.

EXPIRATION OF SHARE RIGHTS

*Share rights can be exercised only up to certain date after which the rights become worthless.

*This approach is defended on the philosophy that the original shares have lost some of their value
because the new shares are offered for sale at a price which is below the current market price thereby
creating dilution in the value of such shares.

THEORETICAL OR PARITY VALUE OF SHARE RIGHT

*The theoretical or parity value is the assumed fair value of the right that is derived from the market
value of the share.

*Two formulas may be used in the computation of the theoretical or parity value of the right.

WHEN THE SHARE IS SELLING RIGHT ON

MARKET VALUE OF SHARE RIGHT-ON MINUS SUBSCRIPTION PRICE / NUMBER OF RIGHTS TO PURCHASE
ONE SHARE PLUS 1 = VALUE OF ONE RIGHT

WHEN SHARE IS SELLING EX-RIGHT

MARKET VALUE OF SHARE EX-RIGHT MINUS SUBSCRIPTION PRICE / NUMBER OF RIGHTS TO PURCHASE
ONE SHARE = VALUE OF ONE RIGHT

*In the absence of the market value of the share right, the theoretical or parity value is determined to
approximate the fair value of the right at the time of acquisition.

ILLUSTRATION – NOT ACCOUNTED FOR SEPARATELY

*If the share rights are not exercised but sold, the sale is simply recorded by debiting cash and crediting
the original investment account. No gain or loss is recognized from the sale.
*If the share rights are not exercised but expired, only a memorandum is necessary to record the
expiration.

*Any subsequent transactions affecting the shares shall be accounted for using the FIFO or average
method.