INVESTMENTS

An investment is an asset or item acquired

with the goal of generating income or
appreciation. Appreciation refers to an
increase in the value of an asset over time.

 Normal Business Operation or Operating

Activities/ Main profit generating
 Investments / Investing Activities / Sideline profit
generating (Maximum utilization of resources)
 TYPE OF INVESTMENTS
1.Financial Instruments
• Investments (Debt Securities)
• Investments (Equity Securities)
• Cash Deposits
2.Investments (Other Issues)
3.Investments in Associate
4.Joint Arrangements
5.Investment Property
6.Other Long-Term Investments
 Financial Instrument-Investments
 Covered by PFRS 9 - Financial Instruments
 Covered by PAS 32 – Financial Instruments Presentation
 Financial Instruments
 Any Contract
 Financial Asset of one Entity
 Financial Asset Liability or Equity of another
Entity
 Financial Instruments

 Bank Deposits Cash in Bank 100,000

Cash on Hand 100,000

Cash 100,000
Deposit Liability 100,000
 Financial Instruments
 Acquisition of Shares

Investment In Shares 100,000

Investor
Dividends Cash 100,000

Cash 100,000
Issuer
Ordinary Shares 100,000
 Financial Instruments
 Acquisition of Bonds

Investment In Bonds100,000
Investor
Cash 100,000
Interest
Cash 100,000
Issuer
Bonds Laibility 100,000
 Shares vs Bonds

 Voting Rights (ordinary/Preference)

 Dividends (Based on Earnings or Profits

 Interest
(Fixed)
 No Rights
 Financial Investments
(Assets)
 Cash
 Equity
Instrument of Another Entity
 Any Contractual Right to receive Cash

 Cash in Bank
 Investment in Shares
 Investment in Bonds
 CLASSIFICATION OF FINANCIAL ASSETS
TEST
Clasification
BM CFC
1. Amortized Cost
(AC)

2. FV-OCI

3. FV-PL

Business Model Test (BM) – How the Company Manage their Investments
Cash Flow Characteristic Test (CFCT)–Nature of the Cash Flow
Debt Securities-Amortized Cost

 Private-CorporateBonds
 Government – Treasury Bonds

 Collect Interest and Principal

 Solely to collect Principal and Interest
 CLASSIFICATION OF FINANCIAL ASSETS
TEST
Clasification
BM CFC Debt Equity Initial Subsequent
1. Amortized Cost Hold to SPPI Test
(AC) Collect

2. FV-OCI

3. FV-PL

Business Model Test (BM) – How the Company Manage their Investments
Cash Flow Characteristic Test (CFCT)–Nature of the Cash Flow

 Solely Payments of Principal and Interest (SPPI)

 Debt Securities

 Collect Interest and Principal

 Solely to collect Principal and Interest

 If there is opportunity
• To be sold to another Entity
 CLASSIFICATION OF FINANCIAL ASSETS
TEST
Clasification
BM CFC Debt Equity Initial Subsequent
1. Amortized Cost Hold to SPPI Test
(AC) Collect

Hold to
2. FV-OCI SPPI Test
Collect &
Sell
3. FV-PL Not Not
Defined Defined

Business Model Test (BM) – How the Company Manage their Investments
Cash Flow Characteristic Test (CFCT)–Nature of the Cash Flow

 Solely Payments of Principal and Interest (SPPI)

 Equity Securities-FVPL

 Stock Trading-Buy low, Sell high

 Held for Trading/Active Stock Trading
 After Short Term Profits
 CLASSIFICATION OF FINANCIAL ASSETS
TEST
Clasification Debt Equity Initial Subsequent (Every Dec.)
BM CFC
1. Amortized Cost Hold to SPPI Test ✓ X FV + TC Effective Interest
(AC) Collect Method

Debt-FV Effective Interest

Hold to Method
2. FV-OCI Collect &
SPPI Test ✓ ✓ FV + TC Cumulative
Mandatory/ With By election, UGL Equity-FV △ in FV - OCI SCE-BS (SHE) End.
Sell recycling (UGL charged to RE Unrealized G or L) Balance
Not Defined Not Defined
charged to P n L)
3. FV-PL Active ✓ ✓ FV(TC- Debt-FV
Held for Trading Exp.)
Trading Short Term Equity-FV △ in FV – PL (IS)
Unrealized G or L)
Profit
Exceptions:
• Equity not for Trading – FVOCI (by Election) /Without recycling (UGL charged to Retained Earnings)
• FA (AC, FVOCI)- Fair Value PnL-Fair value Option-to avoid accounting mismatch (Ex. Loan to bank,
acquired shares –FVOCI) Bank interest exp FVOCI OCI = mismatch
-END-