Professional Documents
Culture Documents
50
CONTENTS
Paragraph
Objective 01 - 02
Scope 03 - 05
Definitions 06
PRESENTATION 19 - 20
DISCLOSURES 21 - 24
EFFECTIVE DATE 25 - 26
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Accounting of Investment in Specific Securities SFAS No. 50
The paragraphs printed in bold letters and italics are standard paragraphs, which
must be read in the context of explanatory paragraphs and implementation
guidance printed in normal letters. There is no requirement to apply this statement
on items considered to be immaterial.
OBJECTIVE
01. Differences can still be found in the statements of Financial Accounting Standards
already published in the accounting treatment for the recognition and measurement
of the investment value of securities, especially debt securities. This statement is
intended to standardize the accounting treatment in reporting of investments in
debt securities and in equity securities.
02. This statement regulates the application of the accounting of the fair value of debt
and equity securities which are held by the owners to be traded, debt securities
held until maturity or securities held for neither purposes.
Scope
03. This statement must be applied for the accounting and reporting of investments in
equity securities which fair values are available and for all investments in debt
securities, except as indicated in paragraph 4.
a. The fair value of an equity security is considered available, if the selling price
or the supply and demand price have been set at the Jakarta Stock Exchange,
the Surabaya Stock Exchange and other Stock Exchanges in Indonesia. A
share with a restriction in sale does not meet this definition.
b. The fair value of an equity security, which is only traded in overseas stock
exchange is considered available, if the foreign country’s stock exchange has
a volume of trade and activities proportional or better than the domestic
market.
a. Investments in equity securities which are recorded using the equity method
and investments in subsidiaries.
b. Investments in securities of non-profit organizations.
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Accounting of Investment in Specific Securities SFAS No. 50
Definitions
Fair value is the amount that can be obtained from the exchange of a
financial instrument between independent parties, not in compulsion or in
liquidation. If a market price is available for the instrument, the fair value to
be used in the application of this standard shall be calculated by multiplying
the number of shares traded with the market price per unit.
Holding gain or loss is the net change in the fair value of a security,
excluding: (a) recognized dividend or interest income not yet received
(accrual basis) and (b) every secutiy value depreciation by which is
permanent in nature.
07. At the time of acquisition, the company must classify the debt and equity
securities into one of the following categories :
a. held to maturity
b. trading
c. available for sale
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Accounting of Investment in Specific Securities SFAS No. 50
08. If the company has the intention to hold a debt security until maturity, the
investment in the debt security must be classified under the “held to
maturity” category and presented on the balance sheet at the acquisition cost
after premium amortization or discount.
09. The company may change its intention to own a debt security until maturity
by selling or transferring the debt security. The sale or transfer of the debt
security is not considered as a change in the intention “held to maturity”, if
such change of intention is due to the following conditions :
In addition to the changes described above, other events which are non-
repetitive and are extra ordinary in nature and cannot be anticipated, may
cause the company to sell or transfer certain securities in the “held to
maturity” category, disregarding the original intention to own the securities
under the “held to maturity” category and considering other securities
within the same category. All sales and transfers of securities under the “held
to maturity” category must be disclosed in accordance with the requirements
in paragraphs 23.
10. The company shall not classify a debt security under the “held to maturity”
category, if the company has the intention to own the security for an indefinite
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Accounting of Investment in Specific Securities SFAS No. 50
period of time. Therefore, a debt security cannot be classified under this category,
if the company intends to sell the security, for example, to cope with :
a. changes in the market interest rate and changes related to the similar risk
b. liquidity needs;
c. changes in the availability and the level of return on alternative investments
d. changes in the source of company financing and the requirements
e. changes in the foreign exchange risks.
11. In managing the assets and liabilities of an entity, the management may decide that
the equilibrium of the company financial management risk could be achieved
without the need to provide all of its investments in securities which can be sold
when needed. In this case, the company can determine that a certain debt security
is classified under the “held to maturity” category and will not be sold for financial
risk management purposes. Based on the purpose of the debt security ownership,
the company can recognize the debt security using the acquisition cost method
(including discount amortization or premium).
12. The sale of a debt security which satisfies one of the following two conditions can
be regarded as having met the due date for purposes of security classification as
described in paragraphs 8 and 13 and for disclosure purposes as described in
paragraph 23.
a. the sale of the security takes place on a date fairly close to the due date, so that
the interest rate factor is no longer a determinant factor of the selling
price. The date of the sale is so close to the due date, so that a change in
the market interest rate no longer has a significant effect on the fair value
of the security.
b. the sale of the security takes place after the company receives a major part (at
least 85 percent) of the carrying value of the investment in the debt
security. The payment takes place as advance payment of the debt
security or as payment for the debt security in accordance with the
schedule of installment payments for the debt security (consisting of
principal and interests). For a security with variable interest rates, the
amounts of the installment payments will not be equal in amount,
depending on the interest rate in effect.
Securities classified under the “trading” and “available for sale” categories
13. Investments in debt securities which are not classified under the “held to
maturity” category and equity securities for which the fair values are
available, must be classified under one of the following categories and
measured at their fair values on the balance sheet :
a. “Trading”. Securities purchased and owned for resale in near future shall
be classified under the “trading” category. Securities in the
“trading” category usually show a very high frequency of purchases
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Accounting of Investment in Specific Securities SFAS No. 50
and sales. These securities are owned with the objective of obtaining
profit from short term price differences.
b. “Available for sale”. Securities which are not classified under the
“trading” and “held to maturity” categories must be classified under the
“available for sale” category.
14. Unrealized gains or loss on securities under the “trading” category must be
recognized as income. Unrealized profit on loss on securities under the
“available for sale” category (including securities classified as current assets)
must be included as the component of equity and presented separately, and
shall not be recognized as income until the profit or loss is realized.
15. For the three categories of securities, dividends and interest income, including
premium amortization and discount arising at the time of acquisition, shall always
be recognized as income. This statement has no effect on the method used to
recognized and measure the amounts of dividends and interest income. Realized
profit or loss on securities classified under the “available for sale” or “held to
maturity” category must also be reported as income.
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Accounting of Investment in Specific Securities SFAS No. 50
17. Consistent with paragraphs 8 to 10, a transfer from the “held to maturity” category
rarely takes place, except for a transfer due to a change in condition as described
under paragraph 9. Because of its nature, a transfer to or from securities under the
“trading” category is also rare.
18. For an individual security under the “available for sale” category or “held to
maturity” category, the company shall determine whether a reduction in the
fair value below the acquisition cost (including premium amortization and
discount) represents a permanent reduction or not. If there is a probability
that the investor would not recover the entire amount of the acquisition cost
which should have been received in accordance with the terms of agreement
of the debt security, a permanent reduction shall be deemed to have
occurred. If the reduction in the fair value is regarded as a permanent
reduction, the acquisition cost of the security must be reduced to its fair
value, and the amount of the reduction must be recognized in the profit and
loss statement as a realized loss. A new acquisition cost shall not be revised.
Subsequent increases in the fair value of securities under the “available for
sale” category shall be included in the equity component separately, as
indicated in paragraph 14. Subsequent reductions in the fair value, unless
temporary in nature, must also be included in the equity component
separately.
PRESENTATION
19. A company with a balance sheet, in which assets are categoryed into current
assets, fixed assets and other assets and liabilities are categoryed into short
term and long term (classified balance sheet) must report all securities under
the “trading” category as current assets. Securities under the “held to
maturity” category and the “available for sale” category shall be presented as
either current or non-current assets based on management’s decision.
Specifically, debt securities under the “held to maturity” and “available for
sale” categories maturing the following year must be categoryed as current
assets.
20. The cash flow used for or originating from the purchase, sale and maturity of
securities under the “available for sale” and “held to maturity” categories
must be classified as cash flow from investment activities in the cash flow
report and reported at the gross value for each category of securities. Cash
flow for or originating from the purchase, sale and maturity of securities
under the “trading” category shall be classified as cash flow from operating
activities.
DISCLOSURES
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Accounting of Investment in Specific Securities SFAS No. 50
21. For securities under the “available for sale” and “held to maturity”
categories, the following information must be disclosed in the notes to the
financial statements for each main category of securities :
a. equity securities;
b. debt securities issued by the government,
c. companies’ debt securities
d. debt securities secured by a mortgage, and
e. other debt securities
22. For debt securities under the “available for sale” and “held to majority” categories,
information on the maturity dates of the debt securities must be disclosed in the
notes to the financial statements presented for the latest year. The information on
the maturity dates can be classified based on the period to maturity after the
balance sheet date. Financial institutions must disclose the fair value and the
acquisition cost of debt securities, including unamortized discount and premium,
based on at least 4 categories of maturity dates as follows :
Securities which do not mature on a specific date, such as securities, the payments
of which are secured by a mortgage, can be disclosed separately (not allocated to
several categories of maturity dates above). If the classification of maturity dates
is allocated, the basis of the allocation must be disclosed.
a. receipts from the sales of securities under the “available for sale” category and
the realized profit and loss from the sale.
b. the basis for the determination of acquisition cost in calculating realized profit
or loss (for example, specific identification, average or other method)
c. a change in the unrealized profit or loss from ownership for securities under
the “available for sale” category which has been included in the equity
component separately during the related period.
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Accounting of Investment in Specific Securities SFAS No. 50
d. a change in the unrealized profit or loss from ownership for securities under
the “available for sale” category which has been included in the equity
component separately during the related period.
e. a change in the unrealized profit or loss from security ownership from
securities under the “trading” category which has been recognized as income
during the period of reporting.
24. The following must be disclosed for each sale or transfer of securities under the
“held to maturity” category.
EFFECTIVE DATE
25. This statement becomes effective for the preparation and presentation of
financial statements covering the period beginning with or after 1 January,
1999. Early implementation is encouraged.
26. The application of this statement for the first time will affect Retained Earnings.
The effect shall be reported as the effect of change in accounting principles
described in paragraphs 42 SFAS No. 25 Net Profit or loss for the Current Period,
Basic Mistakes and Changes in Accounting Policy. The effect on retained earnings
can take the form of a recovery of income in the amount of unrealized loss of
ownership of a security in the “available for sale” category. The unrealized
ownership profit or loss for the security under the “available for sale” category on
the date this statement is implemented for the first time, shall be included
separately in the equity component.
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