Section A


Investments

 
 Primary market and secondary market
 Investment can be in Debt investment or Equity
investment

Investments in Debt Securities

 Held-to-Maturity –Management has both the
positive intent and the ability to hold until maturity
at amortised cost
 Available-for-Sale – FVTOCI
 Held for trading- Fair Value through income
statement (TVTIS/FVTPL)
 Held-to-Maturity

 Valued at amortised cost
 Fair value or market values changes are ignore in
this method.
 Example-Mr.A bought debt instrument FV 1000,
interest rate 12% at 891. the brokerage he paid 8. the
remaining life of the bond is 5 years.
 Solution –
Cost- 899 (891+8)
Inflows 120 p.a. for 5 years and 1000 principal.
So IRR/effective rate is 15%
 Solution

Year Opening Interest 15% Receipt Amortised
cost
1 899 135 120 914
2 914 137 120 931
3 931 140 120 951
4 951 143 120 974
5 974 146 120 1000
Profit and Cash flow Balance sheet
loss
Available for sale(FVTOCI)

 At each year fair value is find and the difference
between Amortised cost and fair value transfer to
OCI. So transfer to Equity.
Interest income shall be transfer to Profit and loss
account by effective interest rate method.
 Held for trading (FVTPL)

 Trading debt securities are accounted for at fair
value, with interest, realized gains and losses, and
unrealized holding gains and losses reported in net
income/P&L/IS.
Reassessment of Classification

 At each reporting date the investor company must
reassess the classifications of its investments in debt
securities for their continued appropriateness.
 For example, if the company no longer has the
ability to hold debt securities to maturity, it would
not be appropriate to continue to classify them as
held-to-maturity.