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Report Investment
Report Investment
NATURE
-asset held by an entity for the accretion of wealth
through distribution such as interest, royalties,
dividends and rentals for capital appreciation and for
other benefits to the investing entity such as those
obtained through trading relationship
FINANCIAL ASSETS
• Cash
• An equity instrument of another entity
• A contractual entity
• A contract that will or may be settled in the
entity’s own equity instruments and is
– A non derivative
– A derivative
FINANCIAL LIABILITY
• A contractual obligation
• A contract that will or may be settled in the
entity’s own equity instruments and is
– A non derivative
– A derivative
Examples
Financial Asset Financial Liability
• Cash and cash equivalents • Accounts payable
• Accounts receivable • Utilities payable
• Notes receivable • Cash dividends payable
• Investment in equity • Financial lease liability
securities • Bonds payable
• Cash Surrender Value • Security Deposit
Financial Asset Categories
• Financial Assets @ FVTPL
• Financial Assets @ FVOCI
• Financial Assets @ Amortized Cost
Overview of categories
FA @ FVTPL FA @ FVOCI FA @ AC
FINANCIAL EQUITY SEC. & EQUITY SEC. & DEBT SEC.
ASSET DEBT SEC. DEBT SEC
DEBT •Held for •Collect •Collect
SECURITIES trading contractual contractual
•Designated cash flows & cash flows
at FVTPL Sell •Solely
•Solely payments of
payments of principal and
principal and interest
interest
Upon exercise Dr: Investment in equity Dr: FA@ FVTPL Dr: Investment in equity-
Cr: Cash Cr: Cash FVTOCI
Cr: Cash & Stock rights
When expired Memo Entry Memo Entry Dr: Loss on stock rights
Cr: Stock rights
Classification Accounted for at fair value through profit/loss and are considered as derivative and
presented usually as current assets.
Theoretical Value of rights
a. When the stock is selling right-on:
Value of one right= Market value of stock right-on – subscription price
No. of rights to purchase one share plus 1
Investment in Associate
Beginning bal./ XX Dividends received
Acquisition cost XX
Share in net income of XX Amortization of excess (excluding
Associate XX goodwill)
Share in increase in OCI* XX XX Impairment loss
XX Share in decrease in OCI*
XX Bal. end
Total =
Net Investment Income
Amortization of excess
Excluding goodwill XX XX Share in the net income of associate
Impairment loss XX
Balance end XX
Total =
Formula:
Acquisition Cost XX
Less: Book Value (or Purchase Price) (XX)
Excess of cost over book value XX
Less: Undervaluation of Assets (XX)
Add: Overvaluation of Assets XX
Goodwill (gain or bargain purchase) XX
Adjustments for Amortization
Assets Recognition of Amortization
Inventory Upon disposal or sale (as cost of sale)
Land Upon disposal or sale
Depreciable assets (e.g. machine & Every year through depreciation
equipment)
Goodwill When there is impairment
Computation of Share in Net Income
Net Income of the associate XX
Less: Preference share dividend (XX)
Net Income to ordinary share XX
Multiply by: Percentage of ownership – Ordinary Shares %
Purpose of derivatives
• To manage financial risk which originates from sources (change in
commodity price, change in cash flows and foreign currency
exposure).
• Derivative financial instruments create rights and obligations that
have the effect of transferring between the parties to the instrument
the financial risks inherent in an underlying primary financial
instrument
Measurement of Derivatives
An entity shall recognize and measure all derivatives as either
assets or liabilities at fair value.
No hedging designation
Changes in fair value of a derivative that is not designated as a
hedging instrument shall be recognized in profit/loss.
In this case, the derivative can be thought of a speculation.
Cash Flow hedge
A cash flow hedge is a derivative that offsets in whole or in part the
variability in cash flows from a probable forecast transaction.
Call Option- on the part of the buyer. It gives the holder the
right to purchase an asset.
Put Option- on the part of the seller. It gives the holder the
right to sell an asset.
• Embedded derivatives is a component of a hybrid or
combined contract with the effect that some of the cash
flow of the combined contract vary in a way similar to a
stand alone derivative.
Examples:
1. Equity conversion option
2. Redemption option
3. An investment in bond whose interest or principal payment
is linked to the price of gold or silver.