cage 1 =n. anc St od IEEE IO EGU ay ee fe CHAPTER 15 INTRODUCTION TO FINANCIAL ASSET 4, INVESTMENT IN EQUITY SECURITIES ND ‘TOPIC OVERVIEW duction on financial ‘This chapter discusses the introductic tantruale iis date dese Scan nila messemon hed categorise queen, derecogniton and eget eae ch ef ancl srument LEARNING OBJECTIVES: ‘Arar etudying this chapter, you should Be ale to: a ee ae deserbe the type of financial instruments E tdenttyandenlan she ferent classifications of financial ace, 3 Ment athe inital recognition, initial measurement, 3 aeserrement, recassication, derecognition and financial — presentation of financial asset Staten 44, Dineretate inanial asset and Investment fn equity securities ide fill PERS an PFRS for SMEs 5,_Diferentiate the accounting for FUTPL, FVTOCI and FAAG. INVESTMENTS: Soh ‘Tavestments are assets held by an entity for the accretion of wealth aug Ulctrbution such as interest, royalties, dividends and rentals, for pb Siprediation or for other benefits to the investing entity such a tht ‘obtained through trading relationships. FINANCIAL INSTRUMENT. cans “Afinancial instrament is any contract that gives rise to financial sst# ‘ne entity anda financial liability or equity instrument of another ent FINANCIAL ASSET “F financial asset is anyasset thats (@) ash {(b) an equity instrument of another entity; (6) acontractual right f (to receive cash or another financial asst from another emo ie, (i) te exchange financial assets or Mnancial liabiliies Wh Mtge tntity under conditions that are potentially favarabe t © 492 ry nero ih em “Janae mmber ofthe entity oho a native tha il OF may asec STINE OF ‘Vive amount of ash or another rane ae eae eS {ithe entity’ own equity instruments Fortis purpecs eon Shen equ strut ono inde sara ents homselves contracts for the fue receipt or delnery atthe tings Sm easy instruments itor delivery ofthe eniy's iy is or may be obligad to receive ples of Financial Assets ves cash eaten Seehants receivable ‘wane for bad debts fs receivable Ierest receivable Ines creat (nota valuation acount oan abliy) Tceament int venture ivestmentin associate &[ReSment in subsiry “a, Investment in bonds 1h Gosurrender value 12 Smeg roma Examples of Nonfinanctal Assets Merchandise inventories Biological assets Property, plant and equipment (eg. Building) ‘Accumulated depreciation Intangible assets Prepaid rent Claims for tax refun Deferred tax assets Gold bullion deposited in banks fam LUSTRATION: Financial Assets co inelude the following: On December 31, data for Petmala 40.00 1 Investment in bonds 2 Aerhandse mentors ed 2 Me - 350.000 5 avestment inequity insane bri) {olga ane 200,000 5 Acosta, 150.000 & Investment im subsidy 480.000 Cashand eash equivalents 493set and chapter 15 ~ Intro inant ASSES Chapter 5 = Inte. Ive cashaurendersa 9 Neer fo. Deferred txastets J Resumulares deren 12 resmentinasoeate 15 Gains for tax efond 1 Sting 1S angle sss 16 Interestrecetable 1S propa inert (not a valuation account tO finanday rn) 18, Prepaid rent 9. Allowance fr bad debts 20, Unearned interest income Required: ‘Based onthe above dat, determine the following: 4) Financial assets (FA) 2), Nonfinanialasets (NFA) sowwmio FA Investment in bonds +7340,000 Merchandise inventories a Investmentin equity instruments 250,000 Biological assets A ‘Accounts receivable 200.000 Investment in subsidiary 150,000, Cashand cash equtalents 140,000, Cash surrender value 130,000, Note receivable 420,000, Deferred taxaseete ‘Accumulated depreciation . Investment n associate 90,000 hams for tax refund : Sinking und 70,000 Incangtbe assets Inerest receivable 42,000 Prepaid interest (nota valuation account to nancial lability) 40,000 Prepaid rent Allowance or bad debts 20,0 Srearedinret come {12000} Adjusted balances a ts Nea 266,000 240,000 10000 (100,000) 80,000 60.000, 35000 71,540,000 6 691000, “and Investment in Equity Securit CATEGORIES OF Fr ses pss asetsat irae NANCIAL asses ag prot or los (FVTEL) Toro ole compre Fennell assets amortized cost (raRgy: COC) sts OF CLASSIFICATION ast. shall elassify nancial assets as i cost oF flr value onthe basi of be sei cat's Business Model for mana 4] the Contractual Cash Flow Characte Subsequently measured at Ri the nancial assets istics of the nancial asset lowever. a single entity might have more than one business model, which tn then result indifferent categories of financat assets Although the cas Slothe cllection of contractual cash Now, tis not necessary to hal al of ‘he assets to their contractual maturity. This means that sles of assets con ‘scar without prejudicing the aserton that they ae held for the cllecion contractual eash ows. ‘Contractual Cash Flow Characteristics ‘The assessment ofthe eontracual terms for eash ows ie caried out on a lastument by instrument basis. Contractual exsh flows are made up a 8) Principal =the fair value of the financial asset at inital recognition [PFRs 94.13) Interest» consists of consideration for the tine valve of money, reat Fisk associated. with the principal amount outstanding during. 2 Particular period of time and for other basi lending risks and cost, as wellasa promt margin [PFRS 94.1.3), For instruments denominated in forelgn currency, the assessment is made othe basis oF the currency in which the Instruments. denominated Uloreign currency movements between the forega currency and functional ‘reny are no taken into account when analaing the contractual ern). 495 a” aeprereset sal Asset end Tovestment in Equty g ee: ct ont oF FIVANIM ASSET ae gn thts nN ag Cita amet ct CAA 2 Ran aes ta valve trough oer comprehen evo oF Sn seta are rough profit oo (rm at URITIES investment inequity securities withy 2 mains may be asia either: tea, arr dat assts at far vale trough pro8E OF 10s (VTL) gg Investment in equity securities designated at FVTOCL, 2. DenWArive “denateesmay be come Pemsecgnated as hedging instrument (cash AO hedge, fly hee or hedge of et itvestmentin foreign operations" "Mt by Notused a5 hedging instrument FYTPL beer secunrTies Debceccurtes ae assed based onthe following. pe pAAC™ finance asc shal be mensured at smortzed cosh the lowing conditions are met: UG) the fanaa aset held within a business model whose jee is tohold nancial assets in order to collect contractual eas ey and (6) the contractual terms of the financial aset give rst on pc dates to cash flows that ace solely payments of Princ nd interest (SPPD) on the principal amount oustanding 2. FVTOCL =a finance set sal be messired fir vale tog te Comprehensive income if both of te flowing conditions ae me {Bi the fnancl asset ished suthin a business model whose sabe Is achieved by bot collecting contractual cash flows a ely Jimancil assets nd (0) the contractual terms ofthe financial asset give rise on spit flatee to cashflows that ave solely payments of penal interest onthe principal amount outstanding 3. VTL a finance aot shal be measured fir ale throught trloss under te following conditions Ga) ies held for trading. A Snancial asset is cassied as be # trading iii {B "acduired or incurred principally for the purpose of em ‘epurchasingit nthe near term: J (ip pare ofa porto of ented nancial instrument Tranaged together and for which there Is ewence of rua pattem of short-term profit taking oF 496 vy Intro. to Financial As (operative (enep fora drat that areareaa) “contractor a designated and efectne ag ignated 3t FV' instrument). oyu is designated 3 FVTEL, An entity maya al ton, grate a nance! asset ag west ‘measured at fait value through prom ‘or loss. An entity may use this designation only ‘wi stats more relevant information beau een, Me™ SHE 52 {hit climinates oF signineanty’ reduces e Sveasurement of recognition inconsisteney (Sometimes, erred to as ‘an Scena mismatch wuld terre. ase Bon measuring assets or Tables or recgnting the gains an tossescon them on diferent bases; or one “ee Hine a4 {uy 2 aroup of nancial assets is managed and its performance is " Guated one fair value basis In accordant documented risk management of investment strategy, and information about the group provided interally on that basis tothe entity key management personnel (as defined in PAS 24 Telated Party Disclosures), for example the entity's board of fivecors and chief executive oer. {o) allother debe inancal asset not classified under (2) and (2). financlal guarantee squrry stcuRITIES: ‘Musee thin the scope of PRS 9arecasifed either as TPL atinnctl asset shal be measured a avi through prof yey cates ts measured at far value trough ster comprehensive Sidon Hence, this the deft aniston of investment in ey sri an includes hed for trading guy secures: ‘sclatene n equity securities designated asa FYTOCI~an entity inp make an vouocie lection at iia recognition for partial Ittatnene in equity Instruments that woul otherwise be measured ‘Naira through prt or Testo presen subsequent changes fat Ube ther compehensve name. Eguty investments at bel for tig omay be cased under hi aegoy 497r eee ear eee C wai =) i= ——— = J Comnecremso =") [Soames ACCOUNTING FOR FINANCIAL ASSETS INITIAL RECOGNITION. nancial assets ae recognized Inthe SFP when, and only when hm becomes party to the contractual provisions of the instrument. INITIAL MEASUREMENT All financial assets are measured initially at fair value, plus, for ten financial assets not classified at FVTPL, directly attributable weenie What is fair value? Fair value is the price that would be received to sell an asset or pail transfer a liability in an orderly transaction between market partic ‘the measurement date. [PFRS 13] ost often the fal value of securities isthe quoted price in he is ‘market. For equity securities, the quoted price isthe price per share hl for debt securities; the quoted price is stated as percentage ofthe ceo Did Price and Asking Price (aka “current offer price) =; ‘The appropriate quoted market price fr an asset held or an exsist usually the current "bid price” or the price which a willing buyer pay. 498 15 = (no. {0 ancl stand ovsonae ys meprte quoted markt price for an sie” or the price which ailing eat Asset to be acquired is the fair value? levels of input ae the determinants of eeenae ft value from most son ete ate wo the i inputs eset puts are quoted prices in active love josh tne enULY can access at the ir evidence Of Fale vale and used fant teasurement date, ts the most "thout adjustment, with Toate psn hin value is determined by muti hn el even if the suarker’s normal taily taciny Seen ttt SE 4 bsorh the quantity held and even if placing srasrs ne sc noe hina single transaction might alec the quced es plying the quoted price with the Level 2 inputs revel 2 inputs are inputs other than quoted market prices included within lel 1 tht are observable for the asset or liabilty, either direc ve ices Level 2 Sapa includes ‘quoted prices for similar assets or liabilities n ative markets + quoted prices for identical or similar assets or labilies in markets thatare matactive ‘+ isputs other than quoted prices that are observable for the asset or liability, for example Interest rates and yield curves observable at commonly quoted intervals {implied volaiities credit spreads + inputs that are derived principally from or corroborated by ‘observable market data by correlation or other means (market. corroborated inputs) Level 3 inpats love! 3 inputs are unobservable Inputs for the asset or tlabilty scmsaitle puts are used to ease ar wae £0 the extent that [estan observable inputs are not available, thereby allowing for situations ln which there is ltde, stan, market activity for the asset or ability at the eastverent date {Pty develops unobservable inputs using the best information available als tcunmstances, which might ince the entity's own data, taldg ‘Me sccount all information about market participant assumptions that ' reasonably available 499ae nero. to Financial Asset and Invest Wein Equity Seti craters ramen CO aye as allows In accordareal costs that are directly attributable to the seratey a eral ofa financial asset or nancial labiliy.Am gettin, i grone that would not have been incurred if the engiy St Frtoci cadens) rrns9soe FAAG <<" FrTocr(aeny _rrnsosss FVIPL (debt) —————PFYTOCI (debs) FRSA FvTPL(deb) <———_FvToci acne) PFRS 9567 FINANCIAL STATEMENT PRESENTATION cute ‘The aiferent categories of financial asset may be presented te face of the SEP or in the notes to FS, If itis disclosed in he 504 i ol | 1s Intro. to Financial Asset an normally pres¢ ment in Equity Securities: Disclosure in the Notes jnsetsat Amortized Cost (PAAC) NY va nat ash eguvalnts kK veanvestanents a oswetva x cr gn revelvale om gs receivable * my ENAC x SFP Line tems ranks and cash equivalents xX eter svestments oo He receivable om Foes Fase ree of rong lease receivables x vid presentation (Le, Curent and noneurrent clasifaton), the Ee a tei | Financial Statement Presentation =| [Ccurrentasset generally 2 > NNoneurrent = maturity dates beyond one year afer the | eparting date (deb) or expected tobe sold beyond one Jenratter the reporting date (equity) . Garrent — maturity date fs within one year ater the | eporting date (debt) or expected tobe sold within one _ year after the reporting date (equ) Nancurrent = maturity dates beyond one year ar te reporting date by. Cament maturity date Is within one year from the ‘essuemente subsequent Sad camples for taal recogetion, int | rcosrement,derecopitin,relssiaton and a rerpamclalarst is proseeed separately fF | “| ‘Siemon presentation ty scutes (bolo) and debe securities (next chapter) ACCOUNTING FOR EQUITY SECURITIES EQUITY INSTRUMENT uty instrument is any’ contract that ev seat entity after deducting al of its balls. amples of 0s= stro. to FnancilASSet and Investment * | asset since itis ay is preference shares o 1 fvarrants or written call ot Jin investment in equity securities is a nans ‘efument oF another entity. CLASSIFICATION OF INVESTMENT IN EQUITY SECURITIES (SESSA a OF erences [Ord [eatewnerse | eo we Feit 50% — | EVTPL or FVTOCT Tnvestment iy Spee 00% FYTFLerFVToct —[ nwa AS vestment in Subst "Fe af ownership Ts based on existing and potential ownershs So In recording share in dividends or income, the existing ownershj sed ns ownership mathe ‘Standards Applicable for Investments in Preference Shares ai | typesottavestment | purpose | metnoa_| Sema Financlalassetat fir | Dividend/ wea value ‘Speculation a RRS? esa59_| Standards Applicable for investments Ordinary hares | Applicable) typesofinvestment | Purpose | Method __| Stina Financial asset at fair | Dividend/ —— wave Speclaton | Fairvalae | FHS? Tee Sealant isa Associate influence ——— PERS? Investment in Joint Joint ee ies Js fauty Method | Pest = PERST. sz Investment in * Seoearveive | PS rot | CoetsFar value ; Subsidy Control | Sreguinywethed | gS ls oncondatears | Pane INITIAL MEASUREMENT Investment in equity secures under the scope of PERS 9 is 1 EVTPL.~ fair value excluding transaction cost 2 EVTOCI-~ fair value including transaction cost 506 cr 15 = tro. to Financial Asset and investme at tment in Eauity Securities SSrRATION: Acquisition of Investment susThay ‘company has’ the fellowing transact 1 ints ring the year actions relating tots “ ‘Acquired 16.000 shares of cali : i ling. Co. for #1,500,000 paying additional P10,000. for bree : P5000 for commission, 20 T POKeage and ‘another ammry 4: Received 16000 dividends from calling Co. The dlividends are dectared on January 10. an eres January 10 and recorded on quired: Prepare ll the necessary entries assuming the investments is 1 evrPl }} evToc soLUTION: PAVE, journal entries are: Ties Financial Asset at FVTPL 1,500,000 Brokerage fee ~ P&L 110,000 Commission expense - P&L 5,000 ash’ 1,515,000, Jun.10 Dividend receivable 16,000 Dividend income P&L 16000 Feb.14 Cash 16,000, Dividend receivable 36,000 2) EVTOCT journal entries ae: Jn inanctal Assetat FVTOCL 1,515,000, ash, °1,515,000 Jon.10 Dividend receivable 16.000 Dividend income ~ P&L 16,000 Feht4 cash 16,000 Dividend receivable 16,000 Aquisions in between dates of decaration andexdividend date ‘ngome instances, the company might acquire investment in betveen date “telaration of dividends and ex dividend date (aso known as dividends 82): During such acquisition, the dvidends that have acerved on such “avetnet sal be dct from the (tal consideration given to arrive at ‘Weadhusted cost ofthe investment. Pertinent journal entry would be: so7Financial Asset and Investment in Equi Chapter 15 Intro. to a {1 To record the acquisition 55 ~ ptr. £0 Financlal Asset and In nent No.2, Investment x "Trading securities a Dividend receivable(or dividend income) XX ee ea #2300 (cash Xx {Commission expense ~ Pa, pee 2, Torecord receipt of dividends Dividend receivable om cash aad Xx cash P1515,000 Dien ee ee bd Financial asset at EVTOCI 1020000 ILLUSTRATION: Acquistion n Between Declaration Date and Ex ce F4z0.000 Cabo Company entered into the following transactions during nose coh : 2 January 10. Acquired the following investments: — ro 38 32000 "321000 shares of Topdac Co. classified as trading Dividend recelvable a » 32000 Fee coe anand pad an adonal 0,006 eg te a ae another P5,000 for commission. Bead aidend ieee Ae > 10.000 shares of Pablacion Co. designated as FVTOCI for P1pt0q cash and paid an additional 20,000 for brok al }ENT CLASSIFICATION AND MEASUREMENT rage ang | unstau ‘commissions. uassiFICATION i ebruaty 14 Nessivea eee eae cASTpent in equity securities with fil value may subsequently be > 32,000 from Topdac Co. declared January S ofthe currentyearsy, | assed asto ether Financal assetsat (1) FVTPL or @) FTOCL aan 10,000 from Poblacion Co. declared January 15 ofthe curentye, ] [SUBSEQUENT MEASETINET Fate value | Fair value Doses ‘Nessa air value (Unrealized Gains orLoss) | PL ‘cl Required: Based on the sbove and the result of your audit, fai value (Unreal 1. "Compute for the following notes eee a. he costof the Trading Securities on January 10. Sand ong genre ald lng oe ne ‘The cost ofthe FVTOCI Securities on January 10 4 Thee ah Ls ha Gran te pmiecnns he eye eee _/ PITOCLs reser ance of unrealized gn or los forthe FVTOC! i 2, Prepare the journal entries forthe year secu als Sovran as computation of Unrealized GainsorLosses | Feros aod FVIPL securities ao ‘Redulsition excluding transaction costs rasnag | TT RVERL seer yr sneer’) ‘Less: Dividend income ofthe investment acquired ee | Ripaeomeeteni ave bes commmarale (3 we Cost of trading securities Bisson Pear eeigdse) Lae 2 vemioed gain (oss)-/L XL. Uareles Requirement No.1 eamconn | vied gies) oa peace p00 alr value (measurement date) ‘hat: Brokerages and commissions =e ratrvahe Cost of FTO : Ubneaac gins loss) SFP Requirement Wo, te psa ssh gain or losses 25 realized oF Dividend income from Poblacion LAE | teroua be noted tha PERS 9 dos nok dst ot sy lomo be recogrized 19 he seve simply aged the 508> ai (Chapter 15 - Intro, to Financial Asset and Investment in Equ s ILLUSTRATION: Computation of Unrealized Gains or Tosseg St On January 1, 2020, Ampusongan Company acquired 169 Gamoang, Company for P2500,000. Coramissions paid on th oh y mounted to P15,000. On December 31,2020, the market va ey Gambang’ stocks P90. ‘han 6m December 31,2021 the market value per share of Ga Increases to P2110. imbanes Required: Prepare all the necessary entries assuming the inves (CASE NO. 1: FVTPL. ‘CASE NO. 2: FVTOCI ‘Sime ay SOLUTION: CASENO. 1 FVTPL 01/01/20 Financtal Assetat FVTPL 1,500,000 Commission expense ~ P&L 15,000 cash P151500 12/31/20 Unrealized Loss~ P&L 60,000 Financial Asset at FYTPL in 12/31/21. Financial Asset at FVTPL 320,000 Unrealized gain P&L ane Computation of unrealized loss: Fair value, 12/31/2020 (P90 x 16,000) 1,440,000 Less: Initial earrying amount 1,500,000 Unrealized loss to P&L 2020 ¥ (60,000 Fair value, 12/31/2021 (P110x16,000) 1,760,000, Less: Fair value ~12/31/2020 11440,000 Unrealized gain to PAL,-2021 320,000 ‘CASE NO.2 FVTOCI 01/01/20 Financial Asset at FVTOCt #1515000 cash isis 12/31/20 Unrealized loss OC 75,000 Financial Aset at FVTOCL so 12/31/21 Investment in equity atFVTOCL 320,000 Unrealized gain = OCI" ae Computation of unrealized os: Fair value, 12/31/2020 (P90 x 16,000) 1,440,000 Less: Initial carrying amount 515.000. Unrealized loss = OCI E3000) 510 5 = Taro to Financial Asset an tn 12/31/2021 (P110x 16000) — sing vale, 12/31/2000 dgain-OCl 1 coool! snes Note SEP of 12/31/2021, the amount present © ye SEP of 12/31/2021, the amount presented sth Yee of 12/39/2021 te ao isthe net gain of 245,000 (20.000 ). 1 can also be computed by comparing tefl vale (87/31/2021 of P3,760,000 and inital carrying oe rp 515,000 ying amount on 03/01/2020 eee Reape sce ois Te idend Ineome ofthe lnvesinent sd dec fam te Thain te ently sith vestent Bec ee ain and dt of reared eer ee osprey rece fer PPL'S 3 NOMA Th neat ced thecndeeachacoutng Pe acount and oe inf FP ecpaed ine proto | Sane a eof ine bad agit ei. The journal entries are ‘Toracord the sale an x Voss onsale PAL : nin x Cain onsale ~ P&L DERECOGNITION OF FVTOCIEQUITY SECURITIES curios ‘When derecognized, gain oF Yass on invest assed as FVFOCT s computed as follows = Cnsderation reclved x ss: Dinidend acquired (aividend-08) oe r etseling price suSree to Financial Asset and Investment in Equ captor 15 = Into. rd ‘ae a ii a x ee crete e accountng reument ofan cots Accounting bal “TAS 1.88 fe 89 require that“ According Se income and expense ina period nro tat sha TeePES requires or permits otherwise: TFRS 9 does not either oe an ERS ccteatton cote arising onthe sale of an eget {eee Ferm sed at FVOCI to be recognized In Ocl or In equits Zh detain cost on the ultimate disposal of equlty Instat eet St FVOCI are required to be recognized in PROFIT OR LOSS” “Sel ‘The journal entries are: 1. To agjustthe investment to fair value: Investmentin equity securities at FVTOCL XX ‘Unrealized gain - OCI xx 2, Torecord the sale Cash x ‘Transaction cost expense ~ P&L. x Investment in equity securities at FVTOCI xx 3. Torecord the transfer of unrealized gain to the retained earnings Unrealized gain Xx Retained earnings x Notes 7''The dividend income of the investment sold is deducted from te ‘consideration received ifthe entity sold the Investment inbetween thst lof declaration and date ofrecord of dividends or exdate for ised enti “The transaction cost on the sale of the investment is recognized 3 opmt in the P&L. The reason for separating transaction cost of FVTOG tat deducting the transaction costs to the total consideration rected ‘dilute the amount of gain or loss tobe recognized inthe OC. | ‘The unrealized gain or loss previously recognized for FVTOC is El “Eccount and thus, closed only when the fnanetal asset is derecognand. PRS 9 does mot distinguish gain oF losses as realized or unreaizn Simply used ‘the term "net galn/(loss) to be recognized I Comprehensive incom ‘PERS 5 peragraph BS:7.1 provides that any cumulative gain or loss PAT transferred within equity (Le. Retained Earnings). For banks and other institution covered by BSP, realized ga Sale or derecognition of equity securities booked under the DFU ‘Shall be credited/(charged) to the "Retained Earnings ~ Free’ 4 fon date in aceordance with BSP Circular No. 7080! siz stan investment 2 etmert in guy Sees «A T10N:Derecopmitiono qu uy Dereoanition of Equi Secures feral commission expense of 2 apo, =» PeT Se Weurring a Prepare al the necessary entries in 2020 and 2023 SOLUTION: ‘CASE NO, 1: FVTPL requirement No. 1a Pale, 12/31/2020 Pss0.000 {dae iil eaesying amount ena need gain P&L 1 gain is presented as component of profi or lass since this eset at FVTPL. Requirement No. 10 Contideration received (10,000 ¥4xr48) 240,000 Tess Brokerage and commissions 2,000 736,000 Net seling price Less Carrying value (P5S0,000 x4) Reazed lose on sale P&L Requirement No.2 12/31/20. Financial Assot at FVTPL 50,000 ‘inrealized gain - P&L P sn000 o1jozyat cash 238,000 toss on sale P&L oS Financial Asset at FVTPL 275,004 CCASENO.2: FTO. quirement No. 1a Con fairvalue, 12/31/2020 Less ntl careying ammount wale gain - OC 53Chapter 15 Intro o Financial Asset and Investment in Equ Secu Requirement No. 1b tes Rea ration received (10,000x%xP48) 240,000 Less: Carrying value (P550.000 x ¥4) 275,000 Unrealized Loss - OC! (35,000) Requirement No: 12/31/20. Financial Asset at FVTOC 50,000 Unrealized gain - CL ie 01/02/21 Unrealized loss-0Cl (240K-(650K x 35,000 " ”) Investment in equity at FYTOC! a cash 238,000 ‘Brokerage and commission expense 2,000, Investment in equity at FVTOCL on Unrealized gain - CI (50,000 x %) 25,000 Retained earnings to,o00 Unrealized loss os ‘To record transfer of unrealized gain/loss to retained earing, Note that the amount recognized in the other comprehensive incom m Jamary 2, 2021 is 35,000 whereas the amount that was transferred tom {5 P10,006 computed as follows: Consideration received (10,000x%xP48) 240,000 ‘Less: Cost (P500,000 x) 250,000 ‘Amount debited to RE (20,000) ‘computation of the Carrying Value of the Securities Securities may be. valued sing Flrstin, First-Out Method (FIFO) « ‘weighted average method, ILLusTRATION: ‘Ambuclao Co. has the fllowing trading securities: Investment in Luke Co. - Trading Securities Date Acquired Number of shares and Cost per share Total Cost Jan. 3,202) 130,000 shares at P40 1,200,000, Mar. 3, 2021 20,000 shares at P45 00,000 ‘apr 3, 2021 50,000 shares at P50 2500000 mbuelao Ca doesnot have significant infuence over Luke-On May 125 ‘Ambuelao sold 60,000 shares at P60 per share. Required: Determine the gan (o loss) on sale assuming sua jor 15 Into. t Finacial Asset. se nancial ASS and Ivestnnt in rv: company ts using FIFO in valuing nesstient in Equity Securities _ He aany sushi weighed ees Seas sieve iahted average method n valuing secures nt sonaeament NO. ey ale 13600000 aT (30000 shares 840) a rca no a 0 shares at ay: 3202 (oon shares ata) 500,000 2,600,000 _ amen re fequrement NO-2 a tee (P60 x 60.000) vacanooo wee (P8080 cong sv rsate Pal er) weperofshareand cost TotalCost_ Average cont se eseesD Pu200000 jue seaeeateas 900000 shares aees0 2500.00, sea shares wien. “He nyoM/100,000 shares “TRANSACTIONS SUBSEQUENT T0 ACQUISITIONS DpivIDENDS Four Different Dates Relating to Dividends ric of declaration isthe date when the board of dretors announces eae ot ectuon of dividends. Dividend income may or may not be recognized on this date 2) egeRe txidend date or reinvestment dae isthe date when the Ba date oe ae no longer entitled to dividends In other words, ony sere dese who, bought shares before the exdate f= entitled f0 Ngee Exedate ls relevant fr shares traded in the PSE, Date of record i the cutoff date that determines who antong 1s ae iden i ented to dividend per Histngas ofthe record date, No inurnal entry isrequlred on this date 4) te ot payment isthe date when the dividend isrecived Note: +The date of decaration isthe basis +The exdate is the basis whether the ent ‘he payment date anethce the dividend is eormed fy nl receive te dividend on sssnancialAset and Investment in Equ ae aS eciagarTON a = ‘Applied Auditing by Asuncion, gin Bend, oon Proportion iy, iden, Journal entries: Investor Company Dividend recetvable Dividend income be Date of declaration a Exdividend date No accounting entry Date ofrecord No accounting entry Date of payment Cash me Dividend receivable ry ILLUSTRATION: Cash Dividends ‘On December 1 of the current year, Tuding Corporation owns uh ordinary shares representing 10% of the shares outstanding of Uc Corporation. During the same date Loacan declared P2 per shate dvi ‘on ordinary shares tothe shareholders of record on December 15 pat fon December 31. Required: Prepare all the necessaty entries atthe 1) Date of declaration 3) Ex-dividend date 2) Date ofrecord 4) Date of payment souution; 1) Dividend receivable (10,000 x P2) 20,000 Dividend income : rae 2 No accounting entry 3) Noaccounting entry 4 cash 20,000 Dividend receivable s16 er 15 = Intro to Finenelat ASS and Investment in Equity Securities _ TV DIVIDENDS sis OPER idend [3 a dlvidend pad ft re eee may elude honcrent aes 88 ge gaz ls cae reveipt of stock rights, the ordinary share was wading exis ot EB isea 82 (F315 |s eek hodamanee eye nana cero = lige se js ge |S oz anil asset at FVTOET secures Aso = gS BS alae 1S ‘receipt of stock rights, the uh Cetin Cakentin gs qeeaege |2 eof receipt of aati ee =e RSESeEsee ee EB SSBC assess iy & lggsdlaclecie (2 SouuTION: B | eles" 78 |S SASENO. 1 FVTPL € iE |S fine Memo entry (Received 20,000 stockrights) & x we pays FVTPL (P54 x20:000/4) 270.000 el ik be fg ‘cAseNO. 2: FUTOC! 5 ae Carne Stock rights (P6x20.000) 120900 ak ae Ceatuedan-P/t rizn000 : i cease hays vrocn(st 2000/9200 90008 2 ide > E534 ‘cash (P54 x 20,000/4) 270,000 = BE z lge3 Stock rights 120,000 E| |s ledeg = (|e leslg |2slbe 1h avai of he Och eters Te ol ge | |e (ESE (eeze lows re » When the stock is selling NF ee aTaocerigiron minus | 3 seein 28] [5 era eT SAEllEdE |, le » a ea cE Peel (PRE (EE IE a rere] e28| EES |f [8 (2 Value one right = Thomo c8) ERE 2 | 8 cara s7 nschapter 35 ~ Into to Financial ASS ond Investment in Egy « Theoretical value of rights ILLUSTRATION: Theoret wa uaty 2 Alapang, Company purchased 5.000 shares of prog On Janay jes at P10 per share of Cruz Company. 07° bry ord isoued stk rights to Hs shareholders. The ho} ake neg Company sue Soot are of common stock at pa The meg sgh 9 pure wns PLA pe save. There was no quae ey the rights Pree ty ae 3 eee eee SOUUTION: sag Requirement No.1 Righton ‘a zn P140- Value ofone right ae rs equrement No.2 Bright arer ate tee rio [RECLASSIFICATIONS OF FVTPL AND FVTOCI PERS 9 only allows reclassification of debe securities. Ther fecassifcations to and from financial asset that are equity secuntes prohibited TLLUSTRATION 1: Reclassification between Trading Securities Fvro ‘Dadlan Company owns 10,000, convertible preference shares of wiih mt facquited in 2020 ata cost of P900,000. On December 31, 2020, the far fof the preference shares was 950,000. ‘The investment isto be held as trading securities and on August 25 20 Dacan Company decided to redassify ll the Investment to FVTOG he fale value wae P00. : Compute for the cast ofthe FVTOCI after reclassficatlo™ sowwnio oe Redassifcation is not allowed, therefore the securities wil FVTPL. fore the a7 or 15 Intro. ta Financial Asset copes 35.=OWO. 10 Final Asst and nv ssrnxTtO} roc ws 2: Reclassification of FYTOG ew FvTp, Eauiy Secures 2021, Yaya Co. purchased 204 "#420 00, Yay as pa soe es ve euber 20, 2021, Pastas Co. dered and ae ee mw Inv 1, 2022 Yaya Co decid ore tae othe sty ofthe pene ating eee ea 11 How yt ‘hwch i the new cost ofthe FUTPL? ve mcs the ga i oF loss on reclassification from FVTOCI to FVTPL? So1ArTION: Requirement NO. t wets des not allow recassfcation where the ‘other comprehensive Pre ruption [FVTOCI) has been exercised for Gnancal asset. Thereore theasset sel Femaln as FVTOCI, Requirement No.2 Reauirerjocification #8 nat allowed, no reclassification gain or loss is recom STATEMENT OF FINANCIAL POSITION PRESENTATION. [Gitegories Financial Statement Presentation FUIPL [Curent Assets generally FITBcI—~s” Noncurrent= expected tobe sodBeyond ove ear ar the reporting ste | aerate pected to besld widhin ane yearaterthe | L [P. cepontng date mm] |MLUSTRATION: Financla Statement Presentation a eaeer a, feos Corporation had the flowing svestment that was purchased ving the yar irs yer oF PERM peeaseg ging ey 7 ot rairvaue Trading securities Sey soo000 910000 Sent B tos0o, 100,000. Ten yrgosn00. “FL010000" Sto Seung + roog00 * 720000 Sey Jongoo. 91500ro. to Financial Asset and Investment in Equs y chapter 15 ~ Intro. to Fi ED In EGU eq x e PLO5.500 Totals PL85 0077 Financial asset at amortized cost: F 450000 500,009 pad 615,000. __ 610099 fouls 71,105,000 610,000 Pua PELO.000 No ivesinent were sold during the yea. All Secures exeepe No avesmnet wer uered short tor investments: Nene oo) {Ranges sconidered permanent ured: peste the lowing amount t December 31, 2)" vestments reportedas current asets. 2) Investment reported ax noncurrent assets 3 Unreal gain (or ss) component of income before tans, 23 Unreaied gain or loss component ofshareholers equity sottion: Requirement No-1 ‘Tang secures Seeuiy Activa » stom Seeuty Batfairvalue ion SeeuyCatftrvalue Jann Security Eatcos fom Toul caren asets Fazer Requirement No.2 Security Dat Fair Value ssa Security Patcost eae Total Noncurent Assets risa Requirement No.3 Trang secre Tol tale Secuny A 910,000 Stains Souonn rx9soom Les Total ost ‘SteuriyA 900,000 Security 8 105,000 0585 Unrated Galn-P/ ee Aequlrement No.4 FPrtnelass@ FVT0Ct Toate ‘eee p7on000 gp Steud Toiso0_ 6% 530 spies 35~ Ike to Financial sees at! OC] "Securities in spor eet enon December 31,2021: 1s porto of trading equity Cost Fair Value som sbaresof King Com, ordinary shares pigeoay EY ‘aya hares of Bishop ordinary shares 160.000 139,000 — 182000 "130000 —F2tz,000 329,000" ji ofthe securities had been purchased in 2021, n 2022, Queen completed ‘olinwing securities transaetions: {tus Sold 5,000 shares of King Corp, ordinary shares @ P31 less fees of 4,500. iyril Bought 600 shares of Rook Stores ardinaty shares @ P50 plus fees of 550, ‘nwe Queen Company portfolio of trading equity securities appeared as {alos on December 31, 20225 Cost Fair value 10.900 shares of Bishop, ordinary shares pisz000 "195,500 {0 shaves of Rook Stores ordinary shares 30000 25500, 7212000 —_P221,000 Required 1) Based on the above and the result of your audit answer the following 5], What amount should Queen report as net unrealized gan/loss at December 31,2021, prof or loss? 1) Howe muuch is the gain at Toss onsale of King Corp shares on March 1.2022" ©) Wihat amount should Queen report as net wncealized gain/loss at December 31,2022, profit or loss? Prepate the general journal entries for Queen Company for: 2} The 2021 adjusting entry. 9) ‘The sae ofthe King Corp. stock. «) The purehase ofthe Rook Stores stock 0) The 2022 adjusting enty. soseme. faa Ast IESE IN EQ Seay cape 15 =F Sexy sowwT0N ent No- ta i Requirem a (P139,000 + 7190,000) 329, Fate 2 0 = 182.000) er es caring ae at isi Po Requirement NO. ran rise M153, [Net selling price [(5.000 12/31/2021 seo gg value = Far vale 15 ep inom sale PL Pies eal tse ee Requirement No.2 Journal entries would be: ey Unrealized lovs-P/L (P342,000- 329,000) P 13,000 Fre, P 1300 (©) Cash (5.00031) -P1,500} 153,500 FvTPL 339000 (Gain onsale P&L se (0 EVTPL(600xP50) 30,000 Brokers expense ‘350 Cash ass @ Fv 1,000 “Unrealized gain-P/L 1000 [ACCOUNTING FOR REGULAR PURCHASE OR SALE OF FINANCIAL ASSET Regular way purchase or sale of financial asset [A tegular way purchase or sale is a purchase or sale of @ nancial = ‘under a contract whose terms require delivery ofthe asset within the Srame establahed generally by regulation or convention inthe marie concerned ore 4 regular way purchase or sale of financial assets is recogiaeé sf erecopniaed Using elther trade date or setiement date accountng, method used i to be epplied consistently for all purchases and 5 Snancial assets tha belong to the sume category of nancial asset 3 In PFRS 9 (note that fo this purpose, assets held for trading forma ae xeon tom ait engi a wlee tough pret 09) ‘hole ofmethod isan accounting polgy. Ne” P 522 nto. to Financia Asset and investment in Equ jate Accounting, Securities rade frie date accounting the financlal asst and lability are re flement date accounting, the financial ver e jivered. : ‘asset is recognized on the seminary of recognition and derecognition ina regu rime of financial asset emer Trade date | Commitment date | _N/A] [perecognition | Setiement date NUR Settlement date IMLUSTRATION: Purchase - Trade Date vs. Settlement Date Gh December 29, 2021, Karao Company commits itself to purchase a fancial 2556 fOr P10,000, which Is Its alr value on commitment (trade) lite Transaction costs are immaterial. On December 31, 2021 (Rinanctal searend) and on January 5, 2022 (settlement date) the fair value of the {sets P20,200 and P10,300, respectively. Required: Provide the entries using (a) trade date accounting and (b) settlement accounting assuming the financial asst purchased Is i FvTeL 2) FvTOcT '3) FAC soLUTiON: Requirement No. 1 FVIPL trade date accounting psy eve, ‘Accounts payable - others pyar evreL 200 Unrealized Gain-PAL.(P10,200 10,000) 200 9/05/22 EVTPL (p10,300 - 10.200) 100 Accounts payable-others 10,000 ‘Cash in bank 10,000 P 10,000 10,000 Unrealized Gain - P&L ‘100 Requirement No. 1.6 ra treme date acount "2/29/21 No journal entry : saa