Classification of financial assets Fair Value: page 391

1. Financial assets at fair value through profit Hierarchy: page 391

or loss – include both equity securities and
debt securities.
2. Financial assets at fair value through other
comprehensive income – include both
equity securities and debt securities.
3. Financial assets at amortized cost –
include only debt securities.

The classification depends on the business model

for managing financial assets which may be:
a. To realize fair value changes. à FVPL
b. To collect contractual cash flows. à AC
c. To collect contractual cash flows and sell the
investment. à FVOCI

Measurement

INITIAL MEASUREMENT
Fair Value Transaction
Costs
FVPL Capitalize Expensed
Outright
FVOCI / AC Capitalize Capitalize

SUBSEQUENT MEASUREMENT
FVPL / FVOCI / AC
 FA @ FAIR VALUE THROUGH PROFIT / LOSS
1. HELD FOR TRADING / TRADING SECURITIES
- Required by the standard to be measured
at FVPL. (p. 388 bottom)
A financial asset is held for trading if:
a. It is acquired principally for the purpose of
selling or repurchasing it in the near term.
b. On initial recognition, it is part of a portfolio
of identified financial assets that are
managed together and for which there is
evidence of a recent actual pattern of short-
term profit taking.
c. It is a derivative, except for a derivative that is
a financial guarantee contract or a
designated and an eVective hedging
instrument.
FA @ FAIR VALUE THROUGH OTHER
COMPREHENSIVE INCOME
1. Equity investment at FVOCI
- Irrevocable election to present in OCI
changes in FV of an Investment in equity
instrument that is NOT HELD FOR TRADING.
2. Debt Investment at FVOCI
If both conditions are met:
a. The business model is achieved both by
collecting contractual cash flows and by
selling or trading the financial asset.
b. The contractual cash flows are solely
payments of principal and interest on the
principal outstanding.
FA @ AMORTIZED COST
Debt investment at amortized cost
If both conditions are met:
a. The business model is to hold the financial
asset 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 outstanding.

IOW: these are debt and equity securities that are Derecognition: *contractual cash flows are solely payments of
purchased with the intent of selling them in the near Equity investments at FVOCI – reclassified to principal and interest.
term or very soon. retained earnings.
Debt investments at FVOCI – reclassified to P/L.
2. QUOTED EQUITY INSTRUMENTS
- By consequence because they always
have quoted price. (applicable to equity)

3. IRREVOCABLY DESIGNATED ON INITIAL

RECOGNITION
- Applicable to bonds / debts irrevocably
designated at FVPL during initial
measurement.

4. ALL DEBT INVESTMENTS THAT DO NOT

SATISFY FVOCI / AC
“catch all designation”