FINANCIAL ASSET @ FAIR VALUE

A financial asset is any asset that:

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 favorable
d) An equity instrument of another entity

Not considered financial assets

 Intangible assets
 Physical assets such as inventory and PPE
 Prepaid expenses
 Leased assets

Classification of financial assets

1. FA @ FVPL- include equity and debt securities

2. FA @ FVOCI- include equity and debt securities
3. FA @ amortized cost- debt securities

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

Debt Securities- it represents a creditor relationship that has a maturity date and maturity value. Ex:
Bonds

Initial Measurement

1. Fair Value plus transaction cost

2. But for FA @ FVPL- the transaction price is expense outright

Subsequent Measurement

1. FA @ FVPL
2. FA @ FVOCI
3. FA @ amortized cost

I. FA @ FVPL
a) Financial assets held for trading or trading securities
 Acquired principally for the purpose of selling or repurchasing it in the near
term
 Normally classified as current
b) All other investment in quoted equity instruments
c) Financial assets that are irrevocably designated
d) All debt investments that do not satisfy the requirements for measurement at amortized
cost or FVOCI
 II. Equity Investment @ FVOCI
a) Irrevocable election
b) Realized gain and losses are close to retained earnings

III. Debt Investment @ Amortized cost

a) The business model is to hold th FA in order to collect contractual cash flows on
specified date
b) The contractual cash flows are solely payments of principal and interest on the principal
amount outstanding

IV. Debt investment @ FVOCI

a) The business model is achieved both by collecting contractual cash flows and by selling
and trading the financial asset
b) The contractual cash flows are solely payments of principal and interest on the principal
amount outstanding

SUMMARY OF MEAASUREMENT RULES

Measurement of Equity Investments

a) Held for trading- FVPL

b) Not held for trading- as a rule, FVPL
c) Not held for trading- FVOCI by irrevocable election
d) All other investment in quoted equity instrument- FVPL
e) Investment in unquoted equity instrument- at cost
f) Investment of 20% to 50%- equity method of accounting
g) Investment of more than 50%- consolidation method

Measurement of debt instruments

a) Held for trading- FVPL

b) Held for collection of contractual cash flow- at amortized cost
c) Held for collection of contractual cash flow- FVPL by irrevocable designation or fair value option
d) Held for collection of contractual cash flow and for sale of financial asset- FVOCI
e) Held for collection of contractual cash flow and for sale of financial asset- FVPL by irrevocable
designation or fair value option

NOTE: quoted price for equity- pesos per share, for debt equity- percentage of face amount
Notes:

1. FVPL- income statement

2. FVOCI- other comprehensive income

3. FVOCI cumulative- statement of changes in OE