Objective:

By the end of the activities:

1. You can define financial instruments

2. You can distinguish Financial Asset, Financial Liabilities and Non-Financial Assets or Liabilities
3. You can classify financial assets
4. You can explain the basis for classifications of financial assets
5. You can account for the initial measurement , subsequent measurement and derecognition of financial asset at
fair value

Direction: Form a group of 10 members. Each group will designate one representative which will become the facilitator
of the group. Your task is to form a study group and answer the following practice set. You are encouraged to discuss,
research, or review the concepts about investments and apply it in the activities provided during our Face to Face
Session. We will rationalize the test in our succeeding meetings.

Note: All team members should participate. A member who will not participate or did not contribute significantly to the
group work will get the score that he or she deserves.

DEFINITION ( 15 minutes)

Part 1 :Definition of terms and Understanding the concepts

1. Financial Instrument
a. _______________
b. _______________ and
c. _______________ or
d. _______________

2. Define Financial Asset and Financial Liability and list down the difference between the two

Financial Asset Financial Liability

a. a.
b. b.
c. c.
d. d.

Give at least 3 differences between Financial Asset and Financial Liability

1. _________________________________________________________________________

2.__________________________________________________________________________

3.____________________________________________________________________________
Application:

On December 31, 2020 BTS Company provides the following date. Identify which are considered financial assets or
financial liabilities. Write FA for financial assets and Write FL for Financial liabilities. Write X if it is not Financial Asset or
Financial Liabilities. Under the remarks portion give a brief explanation why it was not included as Financial Asset

Accounts FA /FL/ X Remarks

Accounts Receivable
Allowance for bad debts
Cash and Cash
Equivalents
Interest Receivable
Prepaid Interest
Investment in associate
Stock Appreciation
rights payable
Investment in equity
securities
Investment in
subsidiaries
Investment in Bonds
Cash surrender value
Share premium
Sinking fund
Unearned Interest
receivable
Notes Receivable
Income tax payable
SSS contribution
payable
Intangible assets
Prepaid rent
Treasury shares
Claims for tax refund
Utilities payable
Accounts payable
Deferred taxes payable
Accrued interest
expense
Cash dividend payable
Preference Shares with
mandatory redemption

Note: We need to understand the difference between Financial Assets, Financial Liabilities, and non-Financial
Asset/Liabilities to distinguish one from the other. We will focus more on Financial Assets.
Part 2: INITIAL RECOGNITION OF FINANCIAL ASSETS ( 15 minutes)

1. When do we recognize financial assets?

We recognize financial assets ONLY when __________________________________________.

2. What are the two classification of Financial Asset

a. Financial Asset at ______________ or
b. Financial Asset at _______________
c. Financial Asset at _______________

3. The basis of classification of financial assets are the following

a. By designation ( If it is designated initially at FA-FVPL)
b. Irrevocable election at initial measurement at FA-FVOCI which is not held for trading
c. Business Model for managing the financial Asset
d. Contractual Cash flow characteristics of the Financial Asset
 Contractual Cash flows consist of Principal and interest
4. What are the different types of Financial Assets (Securities)?
1. Debt securities
a) FVTPL ( Fair Value through Profit or Loss)
o Held for trading
o Designated as FVTPL
b) FVTOCI ( Fair Value Thru Other Comprehensive Income) if both are met
o Business model is for both collecting contractual cash flows and selling financial assets.
o The contractual terms of the financial asset give rise on specified dates to cash flows that are
solely payments of principal and interest.
c) FVAAC ( Fair Value at Amortized Cost) if both are met
o Business model is for both collecting contractual cash flow
o The contractual terms of the financial asset give rise on specified dates to cash flows that are
solely payments of principal and interest
2. Equity Securities
a) FVTPL ( Default classification in investment in equity securities which includes Held For Trading
Securities)
b) FVOCI ( Irrevocable election)
3. Derivatives
a) FVTPL ( Not used as hedging instrument)
 Summary of Classification of Financial Assets

DERIVATIVES ( Not for

DEBT Securities EQUITY Securities
hedging)

NO
To hold the FA and collect
contractual cash flows
YES Held for Trading
YES

To collect contractual cash YES

flows and sell the FA NO

NO NO Is Fair Value thru OCI option

used? (Irrevocable Election)
Is Fair Value option used? YES
(Designation)
YES
NO

Fair Value Through Other

Fair Value at Amortized Fair Value Through Profit or
Comprehensive Income
Cost(FVAAC) Loss ( FVTPL)
(FVTOCI)

Using the diagram above, explain the classification of the financial asset. To the group. ( 10 minutes)

What is unquoted equity instrument? __________________________________