(Intermediate Accounting 1A)

LECTURE AID

2019

ZEUS VERNON B. MILLAN

Chapter 11 INVESTMENTS – ADDITIONAL
CONCEPTS
Learning Objectives

• Account for regular way purchase or sale of financial assets.

• Account for the reclassification of financial assets.
• Account for the impairment of financial assets measured at
FVOCI (mandatory).
• Account for dividends received from investments.
• Account for stock rights.
• State the types of risks that are disclosed in the financial
statements.

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Regular way purchase or sale of financial assets

• A regular way purchase or sale is a purchase or sale of a financial

asset under a contract whose terms require delivery of the asset
within the time frame established generally by regulation or
convention in the marketplace concerned.
• Trade date accounting vs. Settlement date accounting
a. Under trade date accounting, the financial asset purchased (s0ld) is
recognized (derecognized) at the trade date (i.e., the date the entity
commits to purchase or sell the financial asset).
b. Under settlement date accounting, the financial asset purchased
(s0ld) is recognized (derecognized) at the settlement date (i.e., the
date the ownership of the financial asset is transferred).
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Fair value change between trade date & settlement date

• For purchases of FVPL and FVOCI assets (but not

amortized cost), the buyer recognizes the change in fair
value between the trade date and the settlement date.
• For sale transactions, the seller does not recognize the
change in fair value between the trade date and the
settlement date.

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Reclassification
• After initial recognition, financial assets are reclassified only when
the entity changes its business model for managing financial
assets.

• Reclassification date is the first day of the first reporting period

following the change in business model that results in an entity
reclassifying financial assets.

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Reclassification of debt-type financial assets

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Reclassification of debt-type financial assets

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Notes on reclassification

• Only debt instruments can be reclassified. Equity instruments

(e.g., investments in shares of stocks) cannot be reclassified.
• Financial assets cannot be reclassified into or out of the “designated
at FVPL” and “FVOCI - election” classifications.
• The initial measurement is fair value at reclassification date,
except for a reclassification from FVOCI to Amortized cost where the
fair value on reclassification date is adjusted for the cumulative
balance of gains and losses previously recognized in OCI.

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Impairment

• The impairment requirements of PFRS 9 apply equally to debt-type

financial assets that are measured either at amortized cost or at
FVOCI.
• Impairment gains or losses on debt instruments measured at FVOCI
are recognized in profit or loss. However, the loss allowance is
recognized in OCI and does not reduce the carrying amount of the
financial asset in the statement of financial position.

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Dividends

• Only cash and property dividends received from equity securities

may be recognized as dividend revenue.

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Stock rights

• Stock rights, being equity instruments, are measured at fair value.

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 Disclosure of Risks on financial instruments
1. Credit risk - The risk that one party to a financial instrument will cause a
financial loss for the other party by failing to discharge an obligation.
2. Liquidity risk - The risk that an entity will encounter difficulty in meeting
obligations associated with financial liabilities that are settled by delivering cash or
another financial asset.
3. Market risk - The risk that the fair value or future cash flows of a financial
instrument will fluctuate because of changes in market prices. Market risk
comprises the following.
a) Interest rate risk
b) Currency risk
c) Other price risk

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 APPLICATION OF CONCEPTS
 

PROBLEM 2: FOR CLASSROOM DISCUSSION

INTERMEDIATE ACCTG 1A (by: MILLAN)

 OPEN FORUM
QUESTIONS????
REACTIONS!!!!!

INTERMEDIATE ACCTG 1A (by: MILLAN)

 END
INTERMEDIATE ACCTG 1A (by: MILLAN)