(Chapter 14 ~ Substantive Test of Investments CHAPTER 14 SUBSTANTIVE TEST OF INVESTMENTS (Chapter 14 - Substantive Tes of Investments ‘Cassfication | Tacome statement related ems ae rae ‘recone inthe proper accounts te statement ‘ofcomprehensve income, Rights and ‘The entity owns, oF has & Teal Tight wo the TeADsaIn) OOBCRNES Obligations investments includ! on the statement financial ‘After studing this chapter, you should be able to —___| postion. 4 Kdently the audit objectives For investments and related account Presentationand [Investments and” vend lavestmeat hear 2 Deseribe the primary substantive aul procedures fo invest Disclosure accounts are property classified, described. and related accounts. ‘3. entity assertions addressed by audt procedures for invested related acrounts disclosed in the fnandal statements, inelding ‘notes. naccordance with the applicable PRS AM vet ano ter sec ert Sesion orancog | it Procedures for Investments autos prinary substantive procedures for investments tpl iclude the following: vel I. Vering te exstence td ownership of secre: 2 Petorning valiation procares In ecrdane with accounting poles, }; fretgungcurent andptntalmatmens fires viewing board of ectors (BOD), mines a Met shareolders “meeting, “comme (He, tnvestment come) Inetngs and agremnent an Reviewing appropriateness of presentation and adequacy of procedures presented inthis tezbook merely ilusrate pica aude cours (Le primary substantive procedures for ats of merchandising ‘manufoctring entities. 1 abo primary designed for wuts of ration: however some discussions are made for parterhp and sole Introduction ‘Accounting for investments can vary depending on whether cost ‘equity, or consolidation methods are used. Much depends on the business model and managements intentions, which are asseseed Ingury and knowledge ofthe clin’ business and ndsty. Only ‘knowledgeable abou the business can determine the economics fan acquiston and whether tmakes sense from an industry perspec the busines’ strategic plan Jn the au of investments, the auditor should gonsier the related Statement accounts such as investment income, holding, gx Impairment ss, derecogntion lass and other items ‘Audit Objectives ‘When audting investments the principal objective for thes {sto detcmine the flowing: [Assertion Category |" Account Walancos Audit Obj ‘Existence “All recorded investinents on the stat ns finanell positon exist. Z trictrship businesses. In actual practice, oud programs mus be taloved ‘Occurence Al recorded income from ave ich client risk and internal contol. The cut procedures comprisag accrued to the entity atthe reporting date Programs may substantial vary rom engagement tothe net ‘Compitenese ‘AL ivestnents owned. by the enty tons mentioned inthis tetbook relates to primary asetion addressed audit procedures dcussed. However, some other assertions may ao Feporting date are incuded on the financial postion. All income investments atthe reporting date ial os eran mn ania —] Ba ae ao ce ar a, Allocation ‘sancal postion tthe appropriate z Lee depen _ ‘nm me’ ol a sector ons fi a See hon Be —) aie Say a0(Chapter 14 - Substantive Test of Investments ‘Securities or evidence of ownership held by the client Ifthe secures (such as stock certificates) or evidence of ownership is by the dient during the year, the audtor counts the secures Inatruments on band and examines evdence of ownership. The cut secures is ideally performed atthe reporting date and slmulaneo With the count of ash and other negoable instrument to prevel Substitution. When inspecting the securities, the auditor should note folowing ‘The name(s) pth indicated owners) ofthe securities; . The names ofthe issuers of securities 2 3 Whether the securtyis debtor equ: 4 The cerifcatenumbers on te documents: 5. Any evidence of pledging or Festicions on dsposal shown on certs; and 1, The numberof shares of stock or the Face value of des sees Secures or evidence ofownershp held bya third pary ‘Some ofthe company’s secures and ater financial instruments may ‘eld by a custodian such as brokerage frm or banks for safekeeping If tethe case the auditor wl confirm tothe custodian, Note that the di and receipt ofthe confirmation request shouldbe always under the co ‘of the aivor after was signed by the cient. The autor would nor include the information mentioned above (ef, name of registred 0 number of shares, et) inthe confirmation request ‘Evaluate the Accounting Methods Used and Test the Valuation “The method of valuation of lnvestments depends on {types of investinents For” example, Investment aol Is accounted under PAS 28, investment jo ‘Ventures accounted in accordance with PAS 28 and 1 financial set at amortized cost or at fir vale accounted in accordance with PAS 38/PFRS 9. Ther the procedure aplied by the auditor depends onthe typeof nvestment. Investment naxscite and joint venture Investment in associate and Joint venture shouldbe accounted under e ‘method, that the investor should account the investment inal 3 pls (ess) any share of investees net income (at loss), plus (less) ‘Change in investees other comprehensive Income and less any dv received. The auditor can verify the share in net income or loss eamining the audited financial satoment of the investee and maki dependent caleulaton For dividends received, the adr can exam published dividend record af the lnvestee. For impairment lose, please toa separate discussion n this chapter. an (Chater 14 ~ Substantive Tes of Investments Investmentin subsidiary ‘The investment in subsidiary Is accounted at cost and subsequently Adjusted for implement, any. Ta vey the beginning balance ofthe investment forthe current year, te autor wll normally tefer to Is prior ‘working paper. The auditor wil then examine any addition or dispesl by ‘xamining supporting dacumentation, For inipalrment loss, pear refer to 8 Separate discussion inthis chapter ‘nonce ast at amortized cost Financial asset at amortized cost based on its designation, ls measured subsequently at amortized cost using effective interest method, To very ‘the carrying amount of the said fnandal ase, che auditor would obtain ‘evidence regarding the orginal Issuance price ofthe asset and prepare an ‘mortzation table using dhe appropriate rate (nominal and efecve/yeld ate) and compat withthe amount reported bythe cilent. For impairment loss, pease refer to a separate discussion in this chapter Financ ase ot for vue ‘inanilat fair value through profit or loss o other comprehensive income |s measured at fal value every reporting date To evaluat the appropiate ‘valuation ofthe asset the auditor Wl examine quoted market price there |Sanactive market For example the shares are quoted n Pippin Stock change, the autor ll check the valuation by dng the quoted pice and ‘maltiplyingt in the numberof shares. Test airments of lvestments “Accounting for impairment depends on the type of Investment. The auditor therefore should consider the appliable PFRS in evaluating the impairment made by management. For example, impatrment of investment in afflotes (eg, associate, subsidiary, Joint venture) should be accounted in accordance with PAS 36 impairment of Asst. Impairment of financial asset (eg, at amortized cost) covered by PAS 39 or PFRS 9 should be made in actordance with the sad standard In assessing te proprictary of impairment, the autor should ingure with nanagement thelr approach in entifyingindiatosof impairment and the facions talen as result of any potential impairment noted. Ian Impairment provision was made or the auditor considers t necessary, the ‘or ora shoalperor he lowing procedures Evaluate the appropriateness ofthe valaton model and asamptions sed ‘Assess the reasonablness of management's estimates; and ‘3 Bvoluate the accuracy, completeness and. the relevance of the |mportant data on which the estimates or measurements are bare, Talos nd anof investments chapter ~ Substantive Tet ‘Chapter 1 — Subctantve Test of Investments fnvestment. Thi ‘The auditor should obtain and review mi (Sharchlders, board) “executive committe, et Sgreements and confirmation replies for evidence fexstence, lens, pledges or ether security interest Investments and of eammitments to acquire or dispose 3s step may also disease unrecorded purchases and ales securities or ther fnanclal instruments Review Flnanctal Investments Including Related Account Statement Presentation and_ Disclosure “The auditor must determine that investments Dropery classified and presented inthe statement antl postion. Short-term investments are included ‘the current aset section wll long-term investments presented In the non-curent asset section, The au should also determine thatthe related income statement accounts shold ruported appropriately Ih profit or loss or a2 component of ‘comprehensive Income. The following table summarze: investment re ems and where re hem: Proftortess(e/L) | ¥ Reported in; [ems 7 Interest income. ¥ Share in net income ot net lost of associate oF ot venture Unrealized holding yain oF 138 on nan ‘asset through proitor loss (FYPL) Disposal. gain or loss on all types Impairment oss on investment. ther comprehensive Unrealized yan or loss on Availabe Tor (APS) or Financial Asset at Fair Vale Other Comprehensive (FVOCD investments ineame (Oc) Share in change of other compre Income component of an associate oF ‘Summary of audit procedures assifed per assertion 4 Existence Inspection of securities held by the Sent. ¥ Confirmation of securities eld. by paris. Desarence 7 Bvaluating the accounting methods weed testthe valation Completeness 7 Detaled minutes of mesing review ‘atom and aoe {rs ¥_ impairment test sat {peasy | 7 Eating coi etd ws i ‘test the valuation. aor nd sion —— pT ere financial Sabo preseation berecs disclosure of investments Including. relat Rights ection securities held by the cient oe % immetannof secures bed by te Btgaeons rresentat pel review “cman aad — [7 ead es ome aman | 7 etal Si heres % Revie fagegestnets nauding Tate secant a [Frauaing the accounting methods used and ars(hapter 14 = Substantive Test of Investments (HAPTER 14 REVIEW QUESTIONS — THEORETICAL GARTER REVIEW QUESTIONS THEORETICAL 1 Wich ofthe following is considered a primary aut procedure to extabish the exitenceand ownership of investments? Inspection of propery, plan and etipmett. Ina with management egg ner of invesnens & Inspection and enustof secures & Recomputation of ening balance of investments 2 To establish the existence and ownership ofa longterm ivetment i the common sock pb aed company, ao suitor arin per ‘sera ounter 2 Rls onthe cent’ internal contos the auditor bat reasonable asurmce thatthe contol procedures are eng applied sprseen, Conn the number of shares owned at arc he by sa oer cusodian, © Deterine the market price por share at the reporting dat Dutlised qutacons fia 4 Contes th umber of share owned withthe sung company 4% Alen at a lrge and ace avestnent porta ta tpt nab {3 enon box fhe autor is unbleoeoumt the see ws Beltoco shee dt the sor not iy wis 3 Regue tht the bank cof te Suto the contents ofthe sal depostorat the lac shee ate 1 tamioesipporingwidenc for tansictons occuring daring tl yer & Goan the secures at subsequent dt and cone wth th ba spheres were added or move Se ean 4 Regus tect wy have the bak sal the sf deport box un te adr can count the secures ata subsequent ate ‘4 Inconfrming with an outside agent, sch 2 ancl natitton that te _agentsholing investment secures inthe cents name, an suator woud ‘most ikl ater evidence in supporto management's Haancnl seteang serio: of existence or ocurrnce and Valuation or alocation Rights and oigations, Completeness 4 Presentation and lelsure, 5. Rnsurng that al iestmens owned by the entity at the reporting date are !ncued on the statement of ancl poston sities the rnoreen ot 4 Valuation or alocation, Rights and abigations 1B completenes 4. Presentation and disclosure, To-sitiy the valuation aseton when auditing an investment accounted forby the eqaty method an sdior mest likely would Inspect the stock certiestes evidencing the vestnent Buamine he audited rani! statements othe ivester company. chapter 14 ~ Substantive Testo Investments ‘Review the brokers advice or canceled checks forthe lvesents scqusion 4. Oita aret quotation fom Ananda newspapers or peas 7. An ator esting longterm investments woul ordinary we asta rocedurest asain he easonabenes ofthe 2 Comletenes of recorded investment income i Girone rent andre pe latino maretabe equ secures. {1 Existence of unrated pain olosses nthe por 1 ofthe flowing which she mos efient ult procedure for vrifiaton ‘tntrest earned om bond invesinents? a tvncng interest decaratons oa independent record book 1 Recomputng interest earned Contin terest rat wh the er ofthe bonds. 41 Vouthing the ects and deposit of ners check 9 cotati eo tv au rot ericson ‘lvdends earned on th vestments neq secures or fcingdopst of dividend eheks tothe cash receipts bok, 1 Reconting mount recelved with published dividend records Comparing the amounts recived wih preceding Year lvdends <4 Roaming sce extension of schedules and oar sa aes iii erro eee Sears ace atten 1 eum ry ed : prenatal cee fee a ena ce cee «Rights and obligations. (4. Presentaton and sosue.om CHAPTER 15 INTRODUCTION TO FINANCIAL ASSET AND INVESTMENT IN EQUITY SECURITIES ptr 15 ~ Intro to Financial Asst an Investment in Eauty Secures ‘Topic OVERVIEW: This chapter discusses the introduction on Anancial instruments and ts categories, initial recogaltion, initial” measurement. subsequent ‘measurement, and reclassification, derecoaition and financial statment Presentation fr each type of financial instrument ‘LEARNING oBjecrIVES: ‘Mer staying this chapter. you should be abl to 1. dent and describe the typeof anda instrument. 2 Identy and explain he diferent clasfations of financial asets 5 Deserbe the inal recognition, nial measurement, subsequent ‘measurement, reclassifation, derecognition and financial statement presentation of Gnancal asst, 4, Dilferentiate franca asset and investment in equly securities under full PRS and PFRS for SMES. ‘._Diferentiate the accounting for FPL, FVTOCI and FANC INVESTMENTS “These are assets held By an entity forthe accretion of wealth through lstribution such a iterest, royalties, dividends and rentals, for capital appreciation or for other benefits tothe investing entity such ab those ‘obtained through trading relationships FINANCIAL INSTRUMENT. ‘financial instrument is any contrac that gives ree toa fnandaT ss ‘ne entity anda financial lability or eqlty instrument of another ety, FINANCIAL ASSET ‘financial asst is any asset tate: (a) cash; () an equityinsrumentofanother entity; (2 Scontractal ight (0) toreceve cast or another financial asset from another entity; or (6) t exchange financial asets oF Gnancallailties with another enty under conditions that are potentially favorable tothe entity, Exam (Chapter 1 = Intro to Financial Asst and lavestment in Equity Securtis (1) a contract that wil or may be setied inthe entty’s own equity insoumentsend ie 5 Sarin to hh tyra bd ree Sharan nme le ey sown ey oun ot (a) erative that il or maybe seed oer han y the exchange (teed amount of tah or anther franca st for ed ‘uber of he ents own egy struments Forth porpose he rc owm ety uments do ance rman hate ‘Nenesves coat for the tare receipt or delay he nis con egy instrument Financial Assets Cash and cash equivalents ‘Accounts receivable ‘Allowance for bad debes Notes receivable Tateestacevable Prepaid interest (not valuation account to final aby) Investment in equty instruments estmetin subsidiary 40, Investment in bonds 11, Cashaurrender valve 12, Sinking fund Examples of Nonfinancial Assets Merchandise inventories Biological assets Property, plant and equipment (eg Building) ‘Accumulated depreaiaion Intangible assets Prepaid rent Claims for tax refund Deferred tacaseets Gold buon deposted i banks LIABILITY “it (), to deliver cash or another financial asset to another entity; or {hexagonal nie ser Sixt ens eps anvonb (cnt tht wl or may ested nets om oy‘chapter 15 ~ nto to Financial Asset and Investment in Eau Secures (© non-derivative for which the entity sor maybe obliged to deliver ‘variable umber ofthe entity’ own equity instru or (Gi) derivative that wil or may be sete other than bythe exchange of Bed amount of cash of anther ala set or 9 ed ‘numberof the entity's own equity instrument Fortis purpose the ett’ own equity instruments do not include Instruments that a {heimselves contracts forthe fture receipe a dlivery of the entity's ‘own equity instrument, ‘An equity instrument is any contract that evidences a residual intrest in ‘he asses ofan ent after deducting all oft abilies Examples of Financial Liabilities “Accounts payable Uattes payable ‘Accrued interest expense Finance lease lability Bonds payable ‘Add Premium on bonds payable o ess Discount on bonds payable z a 4 Cashalvidends payable 5 é x 8 Security depose ‘Issued redeemable preference share (with mandatory redemption) 410. Stock appreciation rights payable (SARs Payable) ‘Examples ofNonfinancial Liabilities ‘Advances fom customers UUnearned rent Warranty obligations ‘Unearned interest on resvables Income taxes payable ‘8S contributions payable PPHILHEALTH contributions payable Property dividends payable Deferred ta isbties Provision for watranties peenemaene lustration: Financial Asset and Financial Liabilities ‘On December 31 data for Petmal Ca, incude the following 1 Accounts recetable 2 Allowance for bad debts 3. Cashandeash equivalents 4 5 Interest receivable Prepaid Interest (not a valuation account to Anni ‘ly 6 Iavestmentin associate 7. Stock appreciation rights payable (SAR Payable) 200,000 20000 140,000 $2300) 40000 90,000 240.000 Investmentin equity instruments estnent in subsidiary, Investmentin bonds Gash surrender value Sinking fund Share Premium | Unearned interest on receivables Income taxes payable SS contibaton payable Intangible assets, Prepaid ent Treasury shares Chim for refund Deferred tax assote ‘Accounts payable ales payable ‘Accrued interest expense (ash dividends payable Finance lesellablty Bonds payable Discount on bonds payable ‘Security depost ‘Advances rom customers UUnearned rent Merchandise Inentoriex Bolo assets Accumulated depreciation Warranty obligations" PHILHEALTH contrbutions payable Deferred tae lates AccumilatedFroft-appropeated for plant expansion ‘Accumulated Profits -unappropriated Issued redeemable preference shares (with mandatory redemption) Issued Preference shares capital Required: ashton the above dat, determine the following 1) Financial assets (F8) 2} Nonfinanctalasets (NFA) 3} Financial lables 1) 4, Nonfinanlal abies (NFL) Chapter 15 = Ino, to Financial Asst and Investment n Equity Secures 250,000 140000 240,000 120000 20,000, 70900 10,000, 18,000, 10000 60,000 40,000, 46000, 50,000, 120,000 300,000 500,000 36,000 54,000 90,000 240,000 30000 60000 323000, 16900 266,000 240,000 100000 26000, 12200 36,000, 1,000,000, 6,400,000 200,000 ‘700,000\Ghapter15 = Intro to Financial Asset and Investment in Eauty Secures, soon ‘ooomited Accounts resale ‘Alowane orb debs Gash on cash equalens Incest recaable Prepaid Interest {00 2 vation {Sn ane faa Stock sppecton pts payable (SARs Payable) Senet vest nut instruments Investment insusbary tnvetnentin bonds Chahsurener ve Sinking Share rtm Uneord nterest on reas Income aes jase SSScontbtons payable intngbie assets Prepare rr aes ims rend Detar tases Account pyle Utes yale ‘roadie expense ch aivdends payee Fiancee laity Bonds payable Donon nds payable Sect depen Arn tomers Urea ent Mercandsnventres Bop ast ‘coud depreciation Wart otgnons Patna payable Beteredatabies Accom Profit appropriated forpanterpanson contributions Fa 200, (20) 2 “0 %0 20 140 340 20 80 20 240 300 500 36 3 50 240 G0) et Chanter 15 Ito. to Financial Asset and Investment in Equity Secures Accumulated profs» {inappropriate sign tings 6400 Issued redeemable preference shares "(wth mandatory redemption) - 20 Issued Preference shares capital cine : ‘Adjusted balances aaa 760162 7a (CATEGORIES OF FINANCIAL ASSETS 1 Financial assets at fir value through profit orloss(FVTPL) 1. through other comprehensive income (FVTOCI) 2, Pinata asets st amortized cost (FAC) DASIS OF CLASSIFICATION ‘An entity shall classy sandal assets as subsequently measured at ‘mortzed cst far valuethrough other comprehensive Income orf valne ‘through profit or loss on the bass ofboth 1) The entiy’s Business Model fr managing the nancial assets 1b) The Contractual Cash Flow Characterstes ofthe nape asst. Business Model Assessment ‘The assessinent on the etly’s business model centers around whether Finanil asst are held for the collection of contractual cash Nlws. Ts ts based on how te entity is un andon the objective ofthe business model as determined by key management personnel (per PAS 24 Related Party Disclosure). The assessment therefore 1s not on an instrument. by Instrument bais rather the overall business model of the ent. However a single entity might have more than one business model, which ‘may ten rel in diferent categories of financial assets Although the focus {son the collection of contractual cash Nows tis not necessary to bold all of the arsts to ther contractual mat This means that sales of asses can ‘cca without prefudicng the asertion that they are held forthe collection ‘teontractl eas own, (Contractual Cash Flow Characteristics “The assesment ofthe contrachial terms for cash ows Is carried out on an Instrument by instrument bars, Contractual cash ows are made up of fa) Principal =the far value of the financial asset st iil recopeton [PERS 9:41.33] 1b) Interest consists of consideration fr the time value of money, forthe fred isk associated with the prnepal amount oustanding during a_Chopter 15 = Intro. to Financial Asset and Investment in Equity Secures partclar period of time and for other basi lending risks and costs a5 ‘wellasaproit margin [PFRS 9.41.38) For instruments denominated i foreign cutenc,the assessment is made fon the basis of the curtency in which the insrument s denominated (reign currency movements betwoen the foreign currency and fancional ‘curren are nottaken int account when analyzing the contractal terms). OVERVIEW OF CATEGORIES OF FINANCIAL ASSET 1. DEBT SECURITIES - investment in debt secures may be classified ay either 42 Financial assets atamortied cost (FAAC); ‘Financial assets at fair value through other comprehensive income (evroctor Financial assets tr vale through prof or loss (FVTPL). 2. EQUITY SECURITIES - investment in equity secuttes within the scope Of PERS 9 may be classified as either 4 Fanci assets at fr value through profit or loss (FVTP investment in equity securities designated a FVTOC! 3. DERIVATIVES - dervatwes may be accounted ‘Designated as heding instrument (ash flow hedge, fair value hedge orhege a at investment a frcgn operation) 1 Notusedas hedging instrument FUTPL, esr secunsriss Debt secures are classe asd nthe folowing A AAG a nancial aet sal be measured a amortied cst Both ‘hetaowing condone are et. (6) the ancl ase shld within a basness model whose abe ts tohold financial assets inorder tcllect contractual cash fo med (2) the contractual tems ofthe Manca aset gv rise on specied dats to cash flows that are. solely payments of pial intrest onthe principal amount oustanding 2, FVTOGLa nancial se shall be measured at aval hough comprehensive income both ofthe follwing condone met (@) the ancl assets hel within 2 business model whose objet Is eheved by tot calectng contractual cash lows en [nancial assess (07 the contractual terms ofthe Hranclaset gv rise on specified ats to cashflows that are solely payments of pina ad a wrest pint amount ousting FVIPL~afnancal asset sal be measred a far value hough prof ‘or loss under the following conditions: be [Chapter 15 = Intro wo Financial Asset and Investment in Eq Securities (0 shed for eradng. A Sac ase sessed a held for digi ie {G)acquired oF incurred princpally forthe purpose of selling or ‘epurchasingtin the eter (iy prt oa pool of tented ancl asruments ht are Tnaged fgets for which here seven of ect Sule fcr term pretsaking oF (apa drat (opt fors drat tts anil guarantee contractors designated on active hpi. (0) designated a FPL An entity may tii reegnton, Aesgnte ancl sue ot messare tava trough pro or ios in eny ay sees degaton ony when oi 3 feria more evant information ecu ther Di amines orsign veces easement oF 6 ‘recognition inconsistency (sometimes referred to as ‘3 Scouse) Tat would others. ase om ann ast or nblies or recogni te as 2d Ieron tem on ferent ass or i rou of finan aes maoged and performene ie (0 Nebel tna far ohn ‘ate br moines wi Scumered rk management or investment stray. sd iran ep roe ema on a {othe entys ly managment personnel (defied Tate fury Delors), for sample teeny bord of Aircore an clef ere fice (o stot ancl ae tds under (0) a (2). [EQUITY SECURITIES: Equity securities within the scope of PRS 9 are assed either as: 1 FVTPL~a financial asset shall be measured at flr value through proft frlows unless its measured at fue value through other comprehensive Income. Hence, this sth default classifiition of Investment inequity scutes and incudes held fr trading eq series 2. Investment in equity securities designated as at FVTOCI -an eny nay make an irrevocable election 3 intl recognition for parca investments ln equity instruments that would otherwise be measured 4 fir value through profit or loss to present subsequent changes in far tale in other comprehensive income. Equity investments not eld for trading may classified under this atoory(Chaper15 ~ nr. to Financial Asset nd Investment in Eauty Secures (mera : “Appi Adin by scion, Nga nd Ela ACCOUNTING FOR FINANCIAL ASSETS. INITIAL RECOGNITION nancial assets are recognized inthe Statement of nancial Psion when, sd ony when th erty becomes party thecontrctl provisos of he INITIAL MEASUREMENT All financial asets are measured intially at fair value, pls, fr those ‘nancial assets not casied a fae value through prof or los, diretiy auributable transseton ost. Whatisfair value? Fair value is the price that would be received to sell an asst or paid to ‘transfer a laity n an orderly transaction between mare participants at ‘themoeasurement date (PFRS 13] Most ote, the fa value of secure isthe quoted price nthe securities ‘market. For equly secures, the quoted price i the price per share, wile for debe secur; the quoted price x tated as percentage othe face value Bid Price and Asking Price (aka “current offer price) ‘The appropriate quoted market rie for an asset held or an exiting assets usualy te curent "bid price” ar the price which a willing buyer wants ay ‘Chapter 15 = Intro to nancial Asst and Investment in Eauty Securities ‘The appropriate quoted market price for an asset to be acquired is the “sking pie” oF the price which wing seller wants to recat How to determine far value? The llowing levels of apt are the determinant of fava from the most reliable tothe least reliable evel 1 inputs - Quoted prices (unadjusted) in active markets for {Identical asets or habiltes. ost lable evidence of far value Used without adjstment with Limited exceptions + Fairvalue = quoted price xquanty held "en the markets normal daly trading volume isnot sufcent o absorb the quantity held = Even i placing orders to sell the postion In single transaction right affect the quoted price. Level 2 inputs - Observable input ether directly (prices) or indirectly (Gerived trom prices) ‘+ Inputs other than quoted market prices included within Level 1 that are lbervabefor the asset or abl, ether director indirect. ‘+ Level inputs include: Level 3 inp ‘quoted prices for similar assets or bltes native markots ‘oted prices for ential or similar asst or abies in markets hat are no actve Jnputs other than quoted prices that are observable forthe asset ot liability, for example 6 interest ates and yield curves observable at commonly quoted Intervals 2 Implied volatilities 9. creditspreads ‘© inputs that are derived principally from or corroborated by thvervable market data by coreaton or other means (Tarket orrborated inputs). Inputs that are not based on observable market data (unobservable inputs) 'Unobservable inputs for de aset or laity. Tis i usally done by ‘management assmption and calculations. UUnabservable Inputs are used to measure far valu to the extent that relevant abservable Inputs are not avalable, thereby allowing for ‘Stations in which theres hte, iran, marke aetvty forthe asset or lability atthe measurement date ‘An enty develope unobservable inputs using the Best information {halable inthe reumstances, which might incade the enty’s own(Chapter 15 — Intro. to Financial Asset and investment in Equty Secures ata taking ito acount all iformation about market. participant ssumptons thats ressonablyavalaie, What are transaction costs? ‘Transaction cst are defined by PERS 9 and PFRS 13.8 follows: 4 Transaction costs for financial instruments are incremental costs that ae diectly atributable to the acquisition, ise or dnposa of a Anais asset oF financial lability. An incremental tost ove that would not have been incurred if he entity had not acute, enced a Aisposed ofthe nancial istruent (PFRS9.4) Transaction cst inde fees and commission paid agents (uding {imployees acting os seling agents), adsers brokers a dose wee by regulatory agencies and security ex ‘ofthe ability and meet both ofthe llowing erie (2) They resule dicey from and are essential to that ransaction (©) They would no have been incited by the ently ad he deson to sal the ase or transfer the ally not been made (salar taco (0 sell as defined in PERS 5). [PFRS 13.4] Fair value is not adjusted for transaction costs. TMs is because transaction cnss are nt a characteristic of an asset ors lab deg area characteris ofthe transaction, ‘SUBSEQUENT MEASUREMENT. ‘After ntl recognition an entity shall measure a anda asst at (@) amortized cost, (b) fair value through other comprehensive income; or (6 airvaletrough profi or los, IMPAIRMENT AND REVERSAL OF IMPAIRMENT ‘A ty shall recognize a loss allowance for expected cet lasses on a FAAG. FVTOG (debt), a lease reeeiabe, 2 contract asoet or a ag ‘commitment and 2 nancial gurantee contract ‘Chapter 15 ~ Intro! to Financial Asst and Investment Equity Seeuees Credit toss isthe diference between al contractual cash ows that are due {o an entity in accordance with the contact an all the cash Nowe at he nuit expects to recive (le all ash shorts), discounted at the aignad sffective interest rate (or credi-adustedeffeive Interest fa, Purchased or originated creditimpaired financial asst), Expected cet los i clasified as either ‘4 A2-month expected credit losses ~ recognized i the credit risk on a financial instrument has not increased signlenty ‘since inal recognition 3 Lifetime expected credit losses ~ recognized if the cri risk on that financial instrument has nreased significant since nial recogation ‘The following tale summarizes financial asset subject impairment under mee ne ta | ee | Si ome ee ae , Derecopnition ts the removal ofa previously recognized facil asset from !anentys statement of aancial position Derecognition of Financial Assets ‘An eny shall derecogzea financial asset when, and only when: (3) the contractual ight tothe cash fows from the fnancal est expr (0) transfers the nancial asset andthe transfer. qualifies. for recognition An entity transfers a nancial asset and only ft ether (@) transfers the contractual rights to receive the cash Rows ofthe Manel (©) retains the contractual rights to receiv the cash flows ofthe Anancal set, but assumes a contractual obligation to pay the cash Nowe to one or more recipients ia an arrangement‘Chapter 15 ~ intr. to nancial Asset and Investment in Equity Securities ‘Where an entity retains the contractual ight o receive the cash Hows of @ Sinancialaset, but assumes a contractual obligation to pay tose cash ows to one or more entities three conditions need to be met before an entity «an consider the addtional derecognton err 4) The entity as no obligation to pay amount to the eventual recipients unless it eollets equlvalent amounts rom the orginal asset 2) The entity is prohibited by the terms ofthe trnsler contract from selling or pledging the orginal asset other than as security, to the ‘evenial reipents . 3) The enty hasan obligation to remit any cash ows collects on beh of the eventual recipients without material delay, The ently fs not tented to reinvest the cash Nw except forthe short period Between callection and emittance to the eventual repent. Any interest earned ‘hereon s emitted tothe evential recipient. Derecogntion of equity securities wil be discussed shortly in this Chapter ‘hile derecogition of debt securities wl be discussed in Chapter 16. ‘Transfers that qualify for derecogntion Wan entity tansfors a, Mnancal asset na transfer that qualifies for Aerecogition init entirety and retains the right to service the financial ase eI regan ther a srvicing ast or aby for that Servicing contract I asa result fa transfer, a innclal asset i drecognized, but the entity ‘obtains a new financial asset or assumes anew financial ability oF Servicing ably, the entity recognizes the new financial asset, fnancll Tabi or servicing ably aa value Servicing Asets ‘contrat to service fnancal assets under wich the benefts of servicing fre expec to more than adequate comperste the. server ft performing he servicing serving contacts ee 2 Undertaken in eoncton th sling oF seurteng the nani saris beings 1. Parchased or ssumed separately Servicing inher A comat to servis nc asets under which the sina fire ‘events om contac specie servicing es lt charge, and other anally revenues (bene of servicing) steno especed fo Sdequtly Compenttethe sercr for performing the sericng Servicing Lint at Fat Value fatrvalue a ofthe bax shet date of ably representing Servicing srangements under" which the estnted fue vente owt ‘Chapter 15 ttro, to Financial Asset and Investment in Equity Secures contraualy specie servicing fees, ate charges, and ater anellany ‘ius ae not expect adequately compensate the serve oa ec Serecopntion'scomped asthe difernce twee: 1)" Retargigameunt esse the date of erecogition) and 2 ae eige ston recaved (ncuding any new aset bland es ny sae ty asad} alte rcrpizednprofit ors the proforma enry fr transfers qualifying derecopntion would be: New asset (oq Cast) vo Servicing asset eo neon derecogniion P&L, Old asset oot Servicing ability pd Ganon derecopition ~ P&L ‘Transfers that donot ali for derogation rae ret erection becuse the ety has Feta a ame ae rks an rewards owersip ofthe trasered asset, Ae aay ll continue to econie the wanfrred stn is entre {hn sl eczema iy for he anseration ee sear penods the entity shall recopnne any income on the sare end an expense nerredon the rac lay ‘The proforma entry for transfers that do-not quay for derecognition vou oo mx ‘ay a Assiricavion aaa ce recasaton i equred Wand only the ety’ Feet made abject for ts Manca! sets changes 01 previous ae set eal 0 ong ap reason ooops ee rnpectely om tw redasfetion date e=9 aa aed oreo recs gas ses oF ier th chang inthe objective ofthe ents business model must ced Sefoe te etsienton dt clasfstion dates define a te fit day ofthe rst reporting peso aaron bens model tat rr name recaalng se tet dy ofthe net reporting pod may mean the st ee qartet which ancl satement equee prevented 491‘Chapter 15 ~ into. to Financial Asset and Investment in Equity Securities PERS 9 doesnt allow recasicaton othe following 3} where the ‘other comprehensive Income" option (FVTOCI) has been resed or equity sxe, 0) Where the ur value option hasbeen exercised in any ccunstance for debt securities; or fe ©) where theres achang in inenion. The folowing changes in crcunstancer rent reclssfeations: 2)" A dervatve that was previously 8 esigosted snd eifertive hedging instrument i a cash Now hedge or net invesnent hedge no longer uae a sich )Adervave becomes designated and efecve hein instrumentina cash flow hedge or net investment hedge. es PRS 9 allows nly reclssiction of among the diferent categories of nancial ase clssted as debt secures In summary, the ollowingreclassfeations of debe securities ae allowed: FAAC ovr (cet) PrRS9 S62 AAC <= rmrcaey PrRs9563. FAac > Frro«(ae0t) rRS9 5.64 FaAc <———$$ ¥ roa (aen.) rns ses FVTPL (debt), ——— FvTOC (debt) PFRS 95.6.6 FVTPL (debe) <———— FvToc (deb) PrRS 95.6.7 ‘STATEMENT OF FINANCIAL POSITION PRESENTATION, [categories | Financial Statement Presentation FVTPL | Current Assets FVTOCI |. Noncurrent= maturity date beyond oe year ater The reporting date (debt) or expected tobe sold beyond one {year after the reporting dat (equity) bo. Current maturity date is within one year after the Feporting date (debt) or expected tobe sold within o ar aftr the reporting dat (equity) TRAC HT Noncurrent = maturity date s beyond one year afer reporting date by Current'= maturity date is within one year from reporting date Note: Tn depth discussion aad examples for titi! recognition, nial measurement, subsequent measurement derecogntion, recassifiation an financial statement presentation of financlal asset le presented separately for equity securities (below) and dabt securities (next chapter) a2 ‘chapter 15 ~ Intro, to Financial Asset and Investment in Equity Secures ACCOUNTING FOR EQUITY SECURITIES. QUITY INSTRUMENT equity instrament s any contract that evidences a residual interest inthe set ofan enty ater deductingal ofits abilities. Examples of equity instruments: + Ordinary shares Certain preference shares {Warrants orwnten call options ‘An investment inequity security Isa flnanclal asset since isan equity Instrument of another en. CLASSIFICATION OF INVESTMENT IN EQUITY SECURITIES. shares | ‘Sot ownership | Preference shares _| = 2088 EVIPLor FVTOCT EVIL or FVTOCL 20% 1 5 EVIPLor FVTOCL | Tnvestment in Assocato| >508 10% FVIPLur FVTOCI—[ Investment in Subsiiar The 9 of ownership is based on existing and penta ownership. However, in ecunding share in dividends or income, the existing ownership must be se Standards Applicable for Investments in Preference Shares “pnleable sypesotimestment | _Purpose_| Method _| ‘Standards vaS32 Financial asset on Fair value PERS? Speciation ae Standards Applicable fr Investment in Ordinary Shares ‘ppleabe sypesofinvestment | Purpose | method __| standaras, vider 7432 Financia asset Spociatin | aire | Pens? as [ovement Sigatiene as soca ‘Munnar | Pavtytetbod | prnga PAS 28 Investment infolat | gine controt | Rauty Method | PERS venre ae a SaaS og Comerenuty | ofAG2l ae contr | Method pn p Gamotdated | Fes rama[Chapter 15 ~ Intro. to Financial Asset and Investment in guy Secures INITIAL MEASUREMENT Invesiment in equly secures under the Scope of PERS 9s ntl {1 FVTPL far value excluding transaction cost 2. EVTOCI-farvalu including transaction cost Mlustration: Acquisition of investment ‘The Paoay Company ‘has the following transactions relating to investments during the year: me He TanuaryS: Acquired 16000 shares of Calhing Co. fr #150. paying atonal POADD for brokerage an £5,000 for commission, : a February 1: Received dens om Cain Ca ddred january 10 the stockholders of record Janay 31, 16,000 Required: Preareal the necessary entries ssming the investments is 1) inane Assets at Far Value through Pott or Las Mt 2), Finan Asets at Fa Value through Other Comprehensive Income. sowution: 1) FVTPL journal entriesare fan ntl sets 15000 brokerage oe 0000 Corman Expense 5000 ah isis Ian.10. rend recente 1000 Dividend income 160 Feist cash 1600 idendrecabie 15 2) FVT0< oun entesare Jen Investment nego stFVTOCL —F1sis000 sh risisoa fan.10 iden rcsable Dividend income eee 16,06 Fob cash 16000 Ohidentrecirble 164 4948 (Chapt 15) hv to Financial ASE and Investment in Equity Secures ‘Acquisitions in between date of declaration and record of dividends Tn ome instances, the company might acquire investment In between date ‘of declaration of dividends and date of record (also known as dividends. ‘on) Daring such aequlstion, the dividends that have accrued on such investment stall be deducted fom the total consideration given to aie at theadjested ost ofthe investment. Pertinent journal entry would be: 1 Torecord the acquisition Investment x Dividend receivable(ordividendincome) —¥X Cash x ‘Torecord receipt of dividends Cash xx Dividend receivable (or dividend income) x ‘Mustration: Acqulstions in Between Dates of Declaration and Record Catt Company entered into the following transactions during the year= January 10 Asulred the following nvestnents: ‘32000 shares of Topdac Co. trading securities for 1,500,000 cash and paying additional #10000 for brokerage and another #5,000 for ‘+ 10,000 shares of Poblacion Co fir vale through other comprehensive {income (FVTOC) fr 000,000 cash an paying adonal P20,000 for brokerage and commissions. February 14 Received the fllowing dividends: ‘+3200 from Tope Co, derlared Janary 5, ofthe current year tothe ‘ockholders of record jamsary 31,2018. ‘+ 710,000 from Poblacion Co. declared January 15, ofthe current year to ‘thostockhoersofecrd January 31, 2016. Required: Based on the above and the result of your aut, answer the following 1) Thecorrect cost othe Trading Secures on January 10 2) The correct cost of Investment in equty as FVTOCI Securities on Janwary 10, 3) The teal dividend income forthe yar. SOLITON: ‘Question No.1 ‘Acqulstion excluding wansaction costs 1,500,000, {est Dividend income ofthe investment sequired 32,000 Correct costo the investment 468,000 ‘Question No.2 Acquistion excluding transaction cos, 1,000,000, ‘Add Brokerages and commissions 70,000chapter 15 Into. to Finan Asset and Investment in Equty Secures, chapter 15 = Inv: to Financial Asst and tnvestment in Equity Securities Come ct the eset sowton: Geesionta OT arate soos Den ncn om ablcen pram set sage Coamtn sm ‘SUBSEQUENT CLASSIFICATION AND MEASUREMENT oat uassincaTion haya/n7 Uneaten Fe 0000 Investment In equly secures with ak vahe may subsequent be "inancil Asset at FVTPL a eer fad aot) into 2/1/18 anal Ast at FPL s20000 ‘SUBSEQUENT MEASUREMENT: FTL | WwToar npn eae ee ‘md Heasurenent at reporting date —[Fairvatue | “Fal vate” computation of unteallzed gain or ls tein Fal Value (Unrealized gains oF Lass) [P/U | Oci (Equity Fait value, 12/31/2017 (P90 x 16,000) 1.440.000 Note ‘Less: Initial carrying amount —1500,000_ erat nn ors aed tern tread L207 00 2 aman ate a ee al vn 12/ya0i0 110516000) 4.760000 i tran re te MIN ra mom oe Mae acrumated balance of oeaicd gu o ss fr the Flr Value UUpreline gta PAL = 2078 ee, teat Oe Eompce ness erste reat, a 2) FOCI jure enti Stent Pinal Pons VO, mt re acetal TOC) PLSISOO ‘Compuration of Unrealized Gains of Losses ore 75,000 PL securities, Fvroct 12/31/17 Unrealized oss equly atta (mesromen dite) XK Rava eastementdt) Xx Tinancal Asset a FYTOCI 75000 se crgvavefarvae "tam fuera 7 reviou reporting da 30 (Fale value 2/21/19. tavestmentinequity atFVTOCL 320,00 Fmaivatagate)" "ax wenger ah OR eres 75000 | ga 88) -P/L XX” Unrealized gains (loss) - SCI OL ‘Unrealized gain ~ equity Ea e om = Farraua(nessronet et) x8 companion of nels i oro lass: Cost 0k fairl, 12/31/2017 (90x 16000) LAADOD ‘Unrealized gains (loss) -SFP — _XX ‘Less: (nitial carrying amount ee mes 7 ‘Unrealized loss-OCI (75,000) Oe nan Crmmin of Uren ai or ame fara 12/01/2016 (71108160) 1.760000 evn ht Rpg ye 00 share of fared 12/0/2007 1etpee i Conpiny fr PLS0000. Cans oe a ae arte #Satpon mounted to P15,000.0n Decerber 31,2017 the ambang’s stock P90. On December 31,2018 the market value Inreases #110, Required: Prepare all the necessary entries assuming the 1) EVIL 2) FvToct 496 market value per share of| er share of Gambang’s stock [DERECOGNFTION OF EQUITY SECURITIES Mien erecogaaed, gain or loss on investment in equity securities ‘asi = FVTPL or PVTOCT is computed as flows Formula: Consideration roceved Tass: Dividend acquired (dividend-on) as7‘Shope A$ = tno to nancial Asst and investment in Eouty Securities “Transaction cost Net selling price = Addi New asset obtained = Less: New liability assume = ‘Total o 7 oa Less: Carrying amount (@ date of derecognition = Guin Goss}onderecpion MN) Note: The ded nce of the toestnent sold is deducted tom the ‘Eiberaton received ithe eniysld the ivestnce i batcoey sh ‘gets et orc ace vesiment neat Is FVTP: te an fod) on dere ‘roca inthe prot or loss whe the avetment nie oe FVTOCL the gal (ss) on derecapiton is tenlned nhc Inthereine aang “ Journal entries or the sale are ve oss on Sle (any) | oe i ain on sae any) nsferof unrealized loss to Reta ned carn [sear [tec tage ae tenia +7 The uated in ors previous ay rch fr PVPL a NOMINAL ‘sscount and thus, closed atthe end of each accounting period. T ‘The uneelzed gun or loss previously recone fr FVTOCI is 4 REAL 498 (Chapter 15 ~ Intro. to Financial Asset and investment in Eauty Securities stration: Derecogation of Equity Securities ‘On famuary 1, 2018, Talpey Corporation owns 10,000 ordinary shares representing 10% of the shares outstanding of Poblacion Corporation. The ‘ordinary shares were acquired on Noverber 2, 2017 ata cost of 500,000 Sind have a fae value of #550,000 on December 31, 2017. On fanuary 2, 2018, Datipey sold hal of ts investment for PAG per share incurring 4 ‘brokerage and commission expense of P2000. ‘CASE NO. 1: Fair Value though Profit or Loss (FVTPL) ‘CASE NO. 2: Fair Value through Other Comprehensive Income (FVTOC Required: For each case above, answer the following 1) “Uarealzed gain or loss on December 31,2017 tobe presented in the sHatement of inact postion. 2) Gainor oss onsale on January 2, 2018 4) Prepare al the necessary entles in 2017 and 2018. SOLUTION: (CASE NO. 1: FVTPL Requirement No.1 Favalue, 12/31/2017 550.000 es nl eareying amount 500,000, Unrealized gain P&L ‘Zero. Unrealized gain i presented as component of profit oF las sinc this {ea finnclal asset at FVTPL. Requirement No.2 Considerauon eceved (20000x%xP48) #240.000 $50,000 {ess Brokerage and eommisions 2,000 Net Sellng Price 739,000 Las: Carrying value (9550000. 4) 275,000 Realized ese on ale ~ P&L, 7(37,00) CASE No.2: FVTOCL Requirement No.1 Fatrvaue, 12/31/2017 550,000 ess inital earying amount 500,000 ‘Unrealized gain OC} 50,000 Requirement No.2 Consideration recelved (10.000x%x P48) # 240,000 000, les: Brokerage and commissions NetSeling Price 236,000 Lass: Carving value (P550,000 x4) 275,000 Retained earnings(Debi) 7(37,000“Chapter 15 Intro. to Financial Asset and Invectnent in Equity Secures Journal entre forthe sae ae Financlal asset through profit or loss (FVTPL) 12/31/17. ancl Aset at FVTPL 50,000 Unrealized grin PAL 50,000 01/02/18 cass 238.000 Voss onsale P&L 37000 etal Asset st FVTPL. 275,000 Financia asset through other comprehensive income (FVTOCH) 12/31/17 Investment in equty at FYTOCL 50,000 Unrealized gan Oc! 50,00 01/02/18 cash 238,000 Retained earnings 37,000 Investment in equly at FOCI 275,000 Unreatzedgrin-Oc1(50.000%%) 25,000, Retained earnings 25000 Torecord transfer of unrealized gaint retained earings x Computation of the Carrying Value of the Securities I Secures may be valued uslag Firetin, Fist Out Method or welghted average method. Iustration: ‘Ambuclao Co has the following trading securities: Investment in Luke Co. Trading Securities ‘Date Acquired Number ofshares and Cost per share Total Cost » 3 Jan. 32018 ‘50,000 shares at P40 1,200,000 Mar 3.2018, 20,000 shares at P45, ‘900,000 Apr. 3,2018 50,000 shares st P50 2,500,000, “Ambucla Co doesnot have sigiiant influence over Luk. On May 12018, Ambuclo sold 60,000 shares at 60 per share Required: Determine he grin (o loss) on se assuring 1). The company i using fist, frst out method in valuing its secures 2) The company isusing weighted verage method in valung ts secures sowie Requirement No.1 Net Sling rie (P60 x 60,000) ess Carrying value Fan. 32018 (30,000 shares at p40) 5.00000 1.200.000 [Number of share and est 30,000 shares t P40 20,000 shares at P45 50,000 shares at #50 100,000 shares (Chapter 15 = Intro. to Financial Asst and Investment in Eaulty Sects Mar. 3, 2018 (20,000 shares at P45) ‘Apr. 32018 (10,000 shares at #50) Ganon sale P&L Requirement No.2 Netseling price (P60 x 60,000) Lass: Carving value (P46 x 60,000) Gainon sal 900,000 500,000 _ 2,600,000_ 1,000,000 5,600,000 mPa ‘otal ost Average cost 1.200.000 =74,66/100,000 shares "TRANSACTIONS SUBSEQUENT TO ACQUISITIONS pivipenps ‘Three Different Dates Relating to Dividends Dalz af dcaration isthe dae when te bard of decors announces, {he dtbunon of dhiends Dent nce may or tay ot be recogned ont date Date of rend thn cao date tat determines who among the Shareholders etd to vidend pe sing a of he record date No joura ety requed en this ate Date of payments the Gate when he dvend is eeivedDIVIDENDS OUT OF EARNINGS: ie Investment in unguoted equity ors ‘securities measured at cost Share avidend a Samedlass Recorded as memorandum entry Dr-FVIPL(@ falrvalue) Dr: FYTOCI@ fairvale) only (Unrealized gain-P&L Crs Unrealized gun OCI », Dilfecent Allocate the original cost using the cass ‘aggregate par value method DrFVTPL-@fairvalus)- Dr: FVTOCL-® fair value) -| Journal entry assuming investment preference shares preference shares Inproference shares werereceived:| Grr Unrealized grin P&L Cr Unreaized gin -OCt Dr: investment in preference shares (Investment in ordinary shares 2 Cash dividends Recorded asincome athe amount of cash receivable SSO ARDY THOS PR HY OUT OF OAT 3 Property Recorded as income athe fair value of noncash asset receivable atthe date of declaration, aiidends DIVIDENDS OUT OF EARNINGS Investment in unquoted equity Investment designated) rors ‘sscurlties measured atcost Financial Assot at FVTPI. ‘asat FVTOCL “Gash reccvedin Av if the shares were received abd Same excotthat the carrying Same liewshare subsequently sold Gain or loss shall value of the Investment old ddvidend be recognized equal to the 1s equal to the far value date Ailerence between the net calling ofdecaration Price and carrying value of the fnvestment sold. The caring value 'Scomputed as allows: (CV before share lidend plus cost = ofsharedividends Share 3 = any) * vider ‘Orig shares share dividend 5 Shares received The income is equal to the cash Income at the flr value of Income atthe alr value in lieu of cash dividends that sould have een the stock reeved ofthe sock received. ‘dividend receive, jn TORT EY OORT OAT ST ETDcompl 15 nro. to Financ Ase ng Inverument in Ey Sess ‘chaptec 15 ~ tro to Financial Asset and Investment n Equity Securities See 8 \ mei 4 Wha bf oeg é gb 4 6 && lias ow See | oat S Ze Sei a] SE eet ay Red ep 8 mi HOES = ae bayzi dp Wa TH LEh UR pubiig ieee a sini f S,88.¢ = Fe HH Gill | q oO abe oe BA jublie # 2 . ef Te iy i Beye [35 24 iio: 3 IMaatration: Share Dividends Imstrations Sheer Corporation owns 20000 vests eA On Octet at con of P500,000, The shares ropresen 056 ofthe racy hares outstanding of Bangao Corporation: Mteuted: Record the een of the share vided on the Absa’ ook Tindr ech ofthe assumption Tstd below: nde ac ming he shares are fnvestment 19 whguoed sures teased at ost mean rece 1000 orlary shares share iden 1 abn cred peeence sates 2 tate dividends, he bata ee cere shes P50 per bare we the ordinary shares asa parva of 27 case No. 2; Assuring the shares a proficor oss, roe acved 1000 ordinary shares asta, iden: The pata essynary shares amounted t PSA pe sae 1) em vet 600peeence stars a stare iden ch Aesforence share as afar vae of P100 caus No. Assuming the shares are favestment in equy SSH? cas eat ft ae hrough oe eamprebenste nc desig ceed 1000 ordinary shares 2 sare den, Te ‘Ratan ordinary shares amounted to PA per sae, 6) need 00 preference shares a stare dens: Fach peserence sre has far value of P10 sre financial assets at fair valve through SOLATION: Case No. Case ery Reeve 1000 ordinary sae am Base CDP 2, tavestmentin preference sares 0,000 Thvesment ordinary shares 50.000 ‘Total par Fraction Allocated wale cost Pref. shares (600250) p'a0n00 3/30 750000 (Ordinary shares (10.000 = P27) 270000 27/30_ #50000, _ Toul 300,000 30/30 500,000 case No.2 $e ATPL ordinary shares (1,000 x54) #000 ‘nveatized gin P&L 4000 ‘rovscad the rcept of sare dividends 05(hepter 15 = Intro. to Fnanell Asst and Investment n Equity Secures _ FVTPL - ordinary shares (10.000 x54)- 40,000 500,000), Unrealized gain- Pat 40000 Torecord rameasurement ofthe ol shares to flr vlue ‘4. FVTPL- preference shares (600 x 100) 0.000 ‘Unrealized gain-P&L, 60,000 case No.3 5 FVTOCI~ ordinary shares (1.000854) 54,000 Unreatized gain “Oct 54000 ‘Torecord the receipt of share dividends FVTOCI- ordinary shares [(10,000.xPS4)- 40,000 500,00], Unrealized gin-oct 40,000 To record remeasurement of theo shares to flr value 6 FYTOCI- preference shares (600x100) 60,000, ‘Unrealized gan Oct 60,000 ‘casH DIVIDENDS ‘ash dividend is the payment of cash to shareholder in proportion to the ‘number of shares owned. Cash divided tty be 4. certain amount of pesos pr share 1 a certain percent ofthe par oF sated vale (eg. 10% cash dividends = 410% xparvalueor stated vale), Journal entries: Investor Company Dateofdecaration Dividend receivable x Dividend income x Date ofrecoed —_Noformal accounting entry Date ofpayment Cash x Dividend receivable x Mtustration: Cash Dividends (On December 1 of the current year, Tuding Corporation owns 10,000 ‘ordinary shares representing 10% of the shares oustanding of Losean Corporation During the same date Lake declared ¥2 per share dividends on ordinary shares to the sharcholer of record on Deceber 18 payable on Required: Prepare all the necessary entries at the 1) Date of declaration 2) Date ofrecord (Chapter 15 = Ineo. to Financial Asset and Investment in uty Secures 3) Dateof payment SOLUTION: 1) Dividend receivable (10000xP2)-¥20,000 Dividend income 20000 2) Noformal accounting entry 2 cash 20900 Dividend receivable zane. noPenry DwIDENo Proper iden sa den pln he fr f sme ast othe than co ot Property dvgends DytRcnneet Bucs covered by PFRS 5 (0g. propery, plant and pment tangles so lnvermentin Asoc) 2) ious other than se covered by PRS (eg current ets st he firm, noncrent sets covered by PAS Ske FVTOG) Accoutngor Proper Bien a Property didends regsriess ofthe types, should always be recorded at ther fala tthe date af declaration irespctive ofthe fair ae 0 the dateofsetement Dt of declaration Dividend receivable * Dividend income No formal accountng entry Date of payment Non-cash asset Disidend recevable Date ofecord lustration: Current Assets as Property Dividends Vira Company owns 10% ofthe outstanding ordinary shares of Ampucao (Corp. On Noveraber 1, 2017, Ampcao declared its inventory a property ‘vend tobe dstribted on February 15,2018, Data relating tothe flr ‘values ofthe inventory allow: “Total far values Date, of property dividends November 1.2017 600,00 December 31,2017 800,000 February 15,2018, 780,000 Required: Prepare te journal entre from the date ofdecaration to date of paymentcoger 15m. Pac seta neste soLvT0¥ ot bend ceca ; 0 ‘Dividend income (600,000 x 10%) ar Dec.31_Nojoural entry Feb.iS— Noncashasset Dividend recelvable 60,000 60,000 0000 unauir/scur pens ty isc dvd aed cs ven ‘Date of declaration Scrip dividend receivable x Dridnd income « Dateofrecord No frmalateounting entry Date of redemption Cash Tnterestincome Seip dividend recelvable x x x casi nace LEU oF sane DIN ea hare vend sezounted as he sic read and erent al he me rected THs tot a endian, however amor ss hal be rcogized. 7 Date of declaration Memo entry: Received no, of shares SSitbareddent Daectrecort femal accountng entry Datecfredemption Cash Investment mi Gunorsle Fg ‘The anor oss male maybe computed ‘Net selling price oe USS Canbingamount ofthe fvestment sold Gin (olor) onsale [Rx For savestment measured at cos, Form ed the carping amount 6 computed as Original carping amount ofthe shares Divide by: m Original shares x ‘Ad: Share dividend x Carrying amount per shar othe investment sold XX Mall by Share dividends xx Carrying amount of the investment old x nance and ines Ei SEEN Traravestnents enone baat he ANNES investment sld For ern care ces a woul bas Pe rece. tration; cash Received ntaewofshare DIMES, masration af ye crent year, atlan OF i 10900 shares nO T cn of 7120.00, 0 eS, ‘cadang Corp. dedared seg aa oI Oy ocaber ‘October 31, Gang COT 20% ar ling a P12 per sare. However. ov sk sli Ph i of supped 2000 Sere ‘ivdends reviously declared Mrogureds Prepare all the necessary eatin Gi esting the tvestments re ‘Geo. lvestment ines SEC. snandal anna nn ait ey scien Sng so EVE ring the current Year secures in unqoted secures measured (case No. 3: Case ater comprenensive BESTE: SOLUTION: SOLUTION ayesiant in eny seuriesin wna secures ensured cust Cash 26900 Gain onsale 46000 Faeskmentnequty secures 20000 et siting price (2.000.472) 26000 Net qaroyng amount the vesme, rn 00/1000 2086 1.000) x20007 20900 Gainonsale 6900 oct Memoentry cana. 2: Financial asta vaue ou mE | Oop een evr 252,000) 24000 ‘Vnrealiaed gain-P&- ‘24000 oct 31 cash 26000 ‘in on sale- PL onnee%) 2000 wre 24000 av Ho 3: vee egy sues desenin! © fair value Saesagh ater cmprenensivenco™e Dec FVTOCL (122.000) 24900 ‘Unvealiod gain OL ‘24000 308