INTERMEDIATE ACCOUNTING I
Financial Assets
Presented by: Mark Avedon M. Nevado
▪ IFRS 7 – Financial Instruments: Disclosures
▪ IFRS 9 – Financial Instruments
▪ IAS 32 – Financial Instruments: Presentation
▪ IAS 39 – Financial Instruments: Recognition and
Measurement
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▪ cash
▪ equity instrument
▪ contractual right
▪ to receive cash or financial asset; or
▪ to exchange under favorable conditions
▪ contract to be settled by own equity
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Financial Assets Not Financial Assets
Trade and Notes Receivables Physical Assets (Inventory and PPE)
Loans and Bonds Receivables Intangible Assets
Perpetual Debt Instruments Prepaid Expenses
Investment in Equity Instruments Advances to Supplier
Lease Receivable Leased Asset
Deferred Taxes
Warranties
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▪ FA measured @ Fair Value through Profit or Loss
▪ FA measured @ Fair Value through Other
Comprehensive Income
▪ FA measured @ Amortized Cost
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1. Entity’s Business 2. Characteristics of Cash
Model Flows
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▪ FA @ AC
▪ Model – hold and collect cash flows
▪ Cash Flow – principals and interest
▪ FA @ FVOCI
▪ Model – collect cash flows and sell financial assets
▪ Cash Flow – principals and interest
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What about equity instruments?
▪ FA @ FVPL
▪ Model – for trading
▪ Cash Flow – principals and interest are incidental
▪ FA @ AC / FA @ FVOCI but irrevocably designated
as FA @ FVPL
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▪ FA @ FVPL
▪ for trading
▪ not for trading
▪ FA @ FVOCI
▪ not for trading but irrevocably designated as FA @
FVOCI
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Measurement FA @ FVPL FA @ FVOCI
Initial Fair Value only Fair Value plus Transaction
(Transaction Cost is expensed) Cost
Subsequent Fair Value with changes Fair Value with changes
recognized in P&L recognized in OCI
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Measurement FA @ FVPL FA @ FVOCI FA @ AC
Initial Fair Value only Fair Value plus Fair Value plus
(Transaction Cost is Transaction Cost Transaction Cost
expensed)
Subsequent Fair Value with Fair Value with Effective Interest
changes recognized changes recognized Method
in P&L in OCI and TC is
amortized using EIM
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▪ On July 1, Kuya Mac purchased 10,000 shares of
Chrono TV for P150,000 and paid P3,000 brokers fees.
▪ On December 31, the fair value per share of Chrono
TV amounted to P16.50 and would incur P4,000 brokers
fees if sold. Additionally, Chrono TV declared and
distributed P1.00 cash dividend per share.
▪ Kuya Mac sold half of the shares on January 5 for a net
proceeds of P90,000.
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Date FA @ FVPL FA @ FVOCI
Jul 1 Financial Asset – FVPL 150,000 Financial Asset – FVOCI 153,000
Brokerage Expense 3,000 Cash 153,000
Cash 153,000
Dec 31 Financial Asset – FVPL 15,000 Financial Asset – FVOCI 12,000
Unrealized Gain – PL 15,000 Unrealized Gain – OCI 12,000
Cash 10,000 Cash 10,000
Dividend Income 10,000 Dividend Income 10,000
Jan 5 Cash 90,000 Cash 90,000
Financial Asset – FVPL 82,500 Unrealized Gain – OCI 6,000
Realized Gain – PL 7,500 Financial Asset – FVOCI 82,500
Retained Earnings 13,500
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▪ On Feb 14, Kivin purchased 12,500 shares of Love Co.
for P180,000 inclusive of P5,000 brokers fees.
▪ On December 31, the fair value of investment in Love
Co. amounted to P170,000 and would incur P5,000
brokers fees if sold. Additionally, Kivin received P5,000
cash dividend from Love Co. which was declared on
December 1.
▪ Kivin sold 5,000 shares on January 31 at P13.00 per
share and incurred P1,000 brokers fees.
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Date FA @ FVPL FA @ FVOCI
Jul 1 Financial Asset – FVPL 175,000 Financial Asset – FVOCI 180,000
Brokerage Expense 5,000 Cash 180,000
Cash 180,000
Dec 31 Unrealized Loss – PL 5,000 Unrealized Loss – OCI 10,000
Financial Asset – FVPL 5,000 Financial Asset – FVOCI 10,000
Cash 5,000 Cash 5,000
Dividend Income 5,000 Dividend Income 5,000
Jan 5 Cash 64,000 Cash 64,000
Realized Loss – PL 4,000 Retained Earnings 8,000
Financial Asset – FVPL 68,000 Unrealized Loss – OCI 4,000
Financial Asset – FVOCI 68,000
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▪ Io Co. purchased 10,000 10% 100-par 2-year bonds on
July 1 when the effective rate is 12%. Interest is paid
every Dec 31 and June 30.
▪ The effective rate on Dec 31 is 13%.
▪ On Feb 1, Io Co. sold all the bonds at effective rate of
13.5% and received cash plus accrued interest.
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PV of Principal = (1.06^-4) * 1,000,000 = 792,093.66
PV of Interest = (1 – (1.06^-4)) / .06 * 50,000 = 173,255.28
792,093.66 + 173,255.28 = 965,348.94
Date FA @ FVPL FA @ FVOCI FA @ AC
Jul 1 FA – FVPL 965,349 FA – FVOCI 965,349 FA – AC 965,349
Cash 965,349 Cash 965,349 Cash 965,349
Dec 31 Cash 50,000 Cash 50,000 Cash 50,000
Interest Income 50,000 FA – FVOCI 7,921 FA – AC 7,921
Interest Income 57,921 Interest Income 57,921
Un. Loss – PL 5,076 Un. Loss – OCI 12,997 No fair value adjustment
FA - FVPL 5,076 FA – FVOCI 12,997
PV of Principal = (1.065^-3) * 1,000,000 = 827,849.09
PV of Interest = (1 – (1.065^-3)) / .065 * 50,000 = 132,423.78
827,849.09 + 143,459.09 = 960,272.87
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Amortization Schedule for FA@AC/FA@FVOCI
Interest Received Interest Income Amortization
Date FA * CR CA * ER Int. Inc – Int. Rec Carrying Amount
Jul 1 P965,349
Dec 31 50,000 57,921 7,921 973,270
Jun 30 50,000 58,396 8,396 981,666
Dec 31 50,000 58,900 8,900 990,566
June 30 50,000 59,434 9,434 P1,000,000
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PV of Principal = (1.0675^-3) * 1,000,000 = 822,046.43
PV of Interest = (1 – (1.0675^-3)) / .0675 * 50,000 = 131,817.46
822,046.43 + 131,817.46 = 953,863.89
953,863.89 + (953,863.89 * .0675 *1 / 6) – (50,000 * 1 / 6) = 956,261.86
Date FA @ FVPL FA @ FVOCI FA @ AC
Feb 1 Int. Receivable 8,333 Int. Receivable 8,333 Int. Receivable 8,333
Interest Income 8,333 FA – FVOCI 1,400 FA – AC 1,400
Interest Income 9,733 Interest Income 9,733
Cash 964,594 Cash 964,594 Cash 964,594
Re. Loss – PL 4,012 Re. Loss – PL 18,409 Loss on Sale 18,409
FA – FVPL 960,273 Un. Loss – OCI 12,997 FA – AC 974,670
In. Receivable 8,333 FA – FVOCI 961,673 Int. Receivable 8,333
Int. Receivable 8,333
Net Int. Inc. 50,000 – Un. Loss Int. Inc. 57,921 + Int. Inc. Int. Inc. 57,921 + Int. Inc.
Effect in 5,076 + Int. Inc. 8,333 – 9,733 – Re. Loss 18,409 = 9,7333 – Loss on Sale
RE Re. Loss 4,012 = P49,245 P49,245 18,409 = P49,245
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IFRS 9 - Expected Credit Losses shall be recognized
▪ Equity Instruments – no impairment
▪ Debt Instruments
▪ FA @ AC – tested for impairment
▪ FA @ FVOCI – tested for impairment (recognized in OCI)
▪ FA @ FVPL – no impairment
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