Components of comprehensive income

1. Net income or loss

2. Other comprehensive income comprises items of income and expense that are not
recognized in profit or loss as required or permitted by PFRS
1. Unrealized gain or loss on equity investment designated at fair value through other
comprehensive income
2. Unrealized gain or loss on equity investment at fair value through other comprehensive
income
3. Gain or loss from translating the financial statements of foreign operation
4. Change in revaluation surplus
5. Unrealized gain or loss from derivative contracts designated as cash flow hedge
6. Re-measurements of defined benefit plan, such as actuarial gain or loss recognized in the
current year
7. Change in fair value attributable to the “credit risk” of financial liability irrevocably
designated as fair value through profit or loss.
Financial Assets

- is an asset whose value comes from contractual

claims.

There assets are frequently traded.

( Cash, Investment in Equity)
Investment in Equity Security
- Representing ownership interest in an equity (e.g
ordinary share or preference share) or the right to
acquire ownership interest (e. g share options, share
warrants ).
- In layman’s term it’s represent an ownership interest in
an entity.
- Does not includes;
- Callable or redeemable shares
- Treasury shares
- Convertible bonds
Investment Categories
 Trading Securities or Financial Asset at Fair Value
through Profits or Loss
 Financial Assets at Fair Value through Other
Comprehensive Income
 Investment in Associate
 Investment in Subsidiary
 Investment in Un-quoted Equity Securities
Gen. Rule – At fair Market Value
Exemptions – Cost if the Fair Market Value cannot be
determined.
Classifications of Financial Assets
 Financial assets at fair value through profits and loss
(Trading Securities)
Includes both equity securities and debt

 Financial assets at fair value through other

comprehensive income (Available for sale securities)
Includes both equity securities and debt

 Financial assets at amortized costs

Includes only debt securities
Initial Measurement of Financial Assets
 Financial assets at fair value through profits and loss
- At fair market value
- Transaction Cost – charge as outright expense

 Financial assets at fair value not through profits and loss

- At fair market value
- Transaction costs – capitalized
Expenses includes:
Fees and commissions paid to agents, advisers, brokers
Transfer taxes and duties
Debt Instruments at Fair Value through OCI
Requirements –
-By collecting contractual cash flows and by selling the
financial assets
-Contractual cash flows are solely for payments of
principal and interest on the principal outstanding
Debt investment at amortized cost
Requirements:
-To hold the financial assets in order to collect
contractual cash flows on specified date
-Contractual cash flows are solely payments of principal
and interest on the principal amount outstanding
Gain or Loss – Financial Asset at Fair Value
General Rule – “Gain or Loss” presented in income statement

Unrealized Gain = Fair Market Value > Carrying Amount

Unrealized Loss = Carrying Amount > Fair Market Value

Sale of Financial Asset = Realized Gain / Loss

Expenses – transaction are not deducted on disposal of the

financial assets.
Financial Assets – Amortized Costs
- Unrealized Gain / Loss is recognized at OCI

- Gain or loss – is recognized when financial assets –

- Derecognized
- Sold
- Impaired
- Reclassified
- Through amortization process
Illustration 1
On January 1, 2019, an entity purchased marketable
equity securities for P5,000,000. The equity securities
qualify as financial assets held for trading. The entity
also paid P50,000 as commission to the broker.
On December 31,2019, the trading securities have a fair
value of P6,000,000.
On December 31, 2020, the trading securities have a fair
value of P4,500,000.
On December 31, 2021, the trading securities are sold
for P5,200,000.
Entry
DATE Particulars
January 1, 2019 Trading Securities 5,000,000
Commission Expense 50,000
Cash 5,050,000

December 31, 2019 Trading Securities 1,000,000

Unrealized Gain – TS
1,000,000

December 31, 2020 Unrealized Loss – TS 1,500,000

Trading Securities
1,500,000

December 31, 2021 Cash 5,200,000

Trading Securities
4,500,000
Gain on Sale – TS
700,000
 Illustration 2
On January 1, 2019, an entity acquired trading securities with the following market value on
December 31, 2019.
Cost Market Gain/Loss
ABC Preference Share 200,000 150,000 (50,000)
XYZ Ordinary Share 800,000 950,000 150,000
RST Ordinary Share 1,000,000 1,100,000100,000
MNO Bonds 3,000,000 2,500,000 (500,000)
Total 5,000,000 4,700,000 (300,000)

On January 5, 2020, The ABC Prefence share is sold for P80,000.

On December 31, 2020, the remaining trading securities have the following carrying amount
and market value.
Cost Market Gain/Loss
XYZ Ordinary Share 950,000 1,000,000 50,000
RST Ordinary Share 1,100,000 1,500,000400,000
MNO Bonds 2,500,000 2,400,000 (100,000)
Total 4,550,000 4,900,000 350,000
 Entry
Date Particulars
January 1, 2019 Trading Securities 5,000,000
Cash 5,000,000

December 31, 2019 Unrealized Loss – TS 300,000

Trading Securities 300,000

January 15, 2020 Cash 80,000

Loss on Sale – TS 70,000
Trading Securities 150,000

December 31, 2020 Trading Securities 350,000

Unrealized Gain – TS 350,000
 Illustration 3 – Equity Investment at Fair Value through OCI
On January 1, 2019, an entity purchased marketable securities for
P1,000,000, the entity paid commission and taxes for P100,000.
The entity do not qualify as financial asset held as trading.

On December 31, 2019, the securities have a market value of

P1,300,000.

On December 31, 2020, the securities have market value of

P1,600,000.

On July 1, 2021, the securities are sold for P2,000,000.

 Entry
Date Particular
January 1, 2019 Financial Asset – FVOCI 1,100,000
Cash 1,100,000

December 31, 2019 Financial Asset – FVOCI 200,000

Unrealized Gain – OCI
200,000

December 31, 2020 Financial Asset – FVOCI 300,000

Unrealized Gain – FVOCI
300,000

July 21, 2020 – Cash 2,000,000

Realized Gain / Loss Financial Asset – OCI
1,600,000
Retained Earnings
400,000

July
The 21, 2020 –recognized
amount Unrealized Gain
in other – OCI
comprehensive 500,000
income is not
Cumulative
classified to profit or lossRetained Earnings
under any circumstances. 500,000
Unrealized Gain/Loss
 Illustration 4
On January 1, 2019 – an entity purchased marketable
equity securities for P2,000,000. The securities do not
qualify as financial asset held for trading.

On December 31, 2019- the securities have a market

value of P, 1800,000.

On December 31, 2020 – the securities have a market

value of P1,300,000.

On July 20, 2021 – the securities are sold for P1,200,000.

 Entry
Date Particular
January 1, 2019 Financial Asset – FVOCI 2,000,000
Cash 2,000,000

December 31, 2019 Unrealized Loss – OCI 200,000

Financial Asset - FVOCI
200,000

December 31, 2020 Unrealized Loss – OCI 500,000

Financial Asset - FVOCI
500,000

July 21, 2020 – Cash 1,200,000

Realized Gain / Loss Retained Earnings 100,000
Financial Asset – OCI
1,300,000

July 21, 2020 – Retained Earnings 700,000

Cumulative Unrealized Loss
 Illustration 5
On January 1, 2019 – an entity purchased marketable equity securities not qualify as
financial asset held for trading with the following fair market value at December 31,
2019.
Cost Market Value Gain/Loss
Security A 1,000,000 1,100,000 100,000
Security B 2,000,000 2,700,000 700,000
Security C 3,000,000 2,800,000 (200,0000
Total 6,000,000 6,600,000 600,000

On July 1, 2020 – Security A was sold for P 1,400,000

On December 31, 2020 – the remaining securities have the carrying amount anf
market value.
Cost Market Value Gain/Loss
Security B 2,700,000 3,500,000 800,000
Security C 2,800,000 2,750,000 (50,0000
Total 5,500,000 6,250,000 750,000
 Entry
Date Particulars

January 1, 2019 Financial Asset – FVOCI 6,000,000

Cash 6,000,000

December 31, 2019 Financial Asset – FVOCI 600,000

Unrealized Gain – OCI 600,000

July 1, 2020 Cash 1,400,000

Financial Asset – FVOCI 1,100,000
Retained Earnings 300,000

Unrealized Gain 100,000

Retained Earnings 100,000

December 31, 2020 Financial Asset – FVOCI 750,000

Unrealized Gain – OCI 750,000

Total Unrealized = 600,000 – 100,000 + 750,000

Gain - OCI = 1,250,000
 Acquisition of Equity Instruments
Type of Investments Initial Measurement Transaction Cost
Investment in Equity Fair Market Value Expensed Immediately
trough Profit or Loss
(Trading Securities
Investment in Equity Fair Market Value Capitalized
Securities
Acquisition by Exchange
 Fair value of asset given

 Fair value of the asset received

 Carrying amount of asset given

Lump Sum - Acquisition
General Rule – Fair Market Value

Only one security has known Fair Market Value –

allocated first to those securities with known fair
market value and exceeds is to the securities with no
known fair market value.
Sale of Equity Security
FIFO or Average Cost Approach - is used to assign the
cost of equity security sold purchased on the same class
acquired at different dates with different costs.