FEBRUARY 23, 2023

DON SUNSHINE S. NERI

BLOCK B

ACTG 27

LECTURE - 22: INTRO TO FINANCIAL INSTRUMENTS

1. Define Financial Assets.

 Financial Asset is any asset that is:

a. Cash;
b. An equity instrument of another entity;
c. A contractual right to receive cash of another financial asset from another
entity.
d. A contractual right to exchange financial instruments with another entity
under conditions that are potentially favorable; or
e. A contract that will or may be settled in the entity’s own equity instruments
and is not classified as the entity’s own equity instrument.

2. What are the classifications and measurement of financial assets? Explain each.

 Financial assets are classified as subsequently measured at:

a. Amortized cost;
A financial asset is measured at amortized cost if both of the following
conditions are met:
I. The asset is held within a business model whose objective is
to hold financial assets in order to collect contractual cash
flows (‘Hold to collect’ business model); and

II. 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
(‘SPPI’).
b. Fair value through Profit or Loss (FVPL).
A financial asset that does not meet the conditions for measurement
at amortized cost or FVOCI is measured at fair value through profit or
loss (FVPL). This is normally the case for “held for trading” securities.

c. Fair Value through Other Comprehensive Income (FVOCI).

A financial asset is measured at fair value through other
comprehensive income (FVOCI) if both of the following conditions are
met:
I. The financial asset is held within a business model whose
objective is achieved by both collecting contractual cash flows
and selling assets (‘Hold to collect and sell’ business model);
and

II. 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
(‘SPPI’).

A. Fair value through other comprehensive income (FVOCI) – Equity

Instrument and No Recycling
An entity may make an irrevocable election at initial recognition to
classify an investment an equity instruments that neither held for
trading nor contingent consideration in a business combination as
FVOCI even if it would otherwise be measured at FVPL.

B. Fair value through other comprehensive income (FVOCI) – Debt

Instrument and Recycling.
 here are instances that the instrument can be classified from FVOCI
to FVPL. It happens when you actually sold the instrument and have
an actual gain or an actual loss.

3. Give at least 5 examples of financial assets.

a. Cash and Cash Equivalents
b. Accounts Receivable
c. Investment in Marketable Securities
d. Investment in Non-Marketable Equity Securities
e. Investment in Treasury Bills