INVESTMENTS

Categories of Financial Assets

■ INVESTMENT in DEBT SECURITIES
– Financial Assets at Amortized Cost (FAAC)
– Financial Assets at Fair Value through Other Comprehensive Income (FVTOCI)
– Financial Assets at Fair Value through Profit or Loss (FVTPL)
■ INVESTMENT in EQUITY SECURITIES (PFRS 9)
– Financial Assets at Fair Value through Profit or Loss (FVTPL)
– Investment in Equity Securities designated at FVTOCI
■ DERIVATIVES
– Designated as hedging
– Not used as hedging instruments
 EQUITY INVESTMENT
At FV through Profit or Loss At FV through Other Comprehensive Income
Inclusion • Securities held for trading Securities not held trading for which the
• Securities not held for trading for enterprise elects to recognize change in FV
which the enterprise did not elect through OCI
measurement at fair value through
OCI
Initial recognition Purchase price; Transaction costs are Purchase price + transaction costs
taken to P/L
Measurement At fair value At fair value
after initial
recognition
Amount taken to None • Unrealized gains/losses
other • Realized gains/losses; with no recycling to
comprehensive profit or loss (but may transferred to RE)
income
Amount taken to • Dividends that are considered return Dividends that are considered as return on
profit or loss on investments investment
• Unrealized and realized gains/losses
 DEBT INVESTMENTS
At FV through P/L At FV through OCI At Amortized Cost
Inclusion • Debt investments held for Debt investments that are held Debt investments that are
trading within the business model of held within the business
• Debt investment held collecting contractual cash model of collecting
within the business flows and to sell, and which contractual cash flows
model of collecting the enterprise elected to consisting SPPI, and
contractual cash flows of recognize the change in which the enterprise did
Solely Payment of FVTOCI not elect to measure at
Principal and Interest FV
(SPPI) and which the
enterprise elected to
measure at FV
• Debt investments held
within the business
model of collecting
contractual cash flows
and to sell, and which the
enterprise did not elect to
recognize in FVTOCI
 DEBT INVESTMENTS
At FV through P/L At FV through OCI At Amortized Cost
Initial recognition At purchase price; At purchase price + At purchase price +
transaction costs are taken transaction costs transaction costs
to P/L
Measurement At fair value At fair value, in a 2-step At amortized cost, using
after initial process: the effective interest
recognition • Adjust to amortized cost method
• Adjust to FVTOCI
Amount taken to None Unrealized gains and losses None
OCI due to change in FV, with
recycling to profit or loss when
realized
Amount taken to • Transaction costs on • Interest revenue • Interest revenue
P/L initial recognition • Realized gains/losses • Realized gains/losses,
• Interest revenue (recycled from cumulative including impairment
• Unrealized & realized OCI), including impairment losses
gains/losses losses
 Financial Statement Presentation
FVTPL Current asset, generally
FVTOCI Noncurrent – maturity date is beyond 1 year after the reporting
date (Debt) or expected to be sold beyond 1 year after the
reporting date (Equity)

Current – maturity date if within 1 year after the reporting date

(Debt) or expected to be sold within 1 year after the reporting
date (Equity)
FAAC Noncurrent – maturity date is beyond 1 year after reporting
date

Current – maturity date is within 1 year after reporting date

 Classification of Investment in Equity Securities
% of Ownership Ordinary Shares Preference Shares
Less than 20% FVTPL or FVTOCI FVTPL or FVTOCI
20% to 50% Investment in Associate FVTPL or FVTOCI
More than 50% Investment in Subsidiary FVTPL or FVTOCI
 Notes on PFRS for SMEs
Financial Instruments are classified as:
1. Basic financial instruments
• Cash
• Demand & fixed deposits
• Commercial and paper bills
• Accounts & notes receivable/payable
• Debt instruments in non-convertible and non-puttable or referenced to old rate
• Investments in non-convertible and non-puttable ordinary & preference shares
• Most commitment to receive a loan
2. Other financial instruments
• Investments in convertible and puttable ordinary & preference shares
• Options, forwards, swaps and other derivatives
• Financial assets that would otherwise be in No. 1 above but have “exotic” provisions that
could cause gain/loss to the holder/issuer
 Notes on PFRS for SMEs
■ Initial measurement
a. Basic financial assets and liabilities are initially measured at the transaction price
(including transaction costs except in the initial measurement of financial
assets/liabilities that are measured at FVTPL) unless the arrangement constitutes, in
effect, a financing transaction
b. Debt instruments that are classified as current assets and current liabilities are
measured at the undiscounted amount of the cash and other consideration expected to
be paid or received (such as net of impairment) unless the arrangement constitutes, in
effect, a financing transactions
■ Subsequent measurement
a. Basic financial instruments is subsequently measured at amortized cost using the
effective interest method, with the exception of equity investments with quoted price or
readily determinable fair value are at FVTPL
b. Other financial instruments are subsequently measured at FVTPL
Notes on PFRS for SMEs
■ Impairment
– Debt instruments at amortized cost instruments must be tested for
impairment.
– Any impairment are recognized in P/L

■ Reversal of impairment
– Previously recognized impairment is reversed in P/L if an event
occurring after the impairment was first recognized causes the original
impairment loss to decrease.
Investment in ASSOCIATE
■ ASSOCIATE – an entity over which the investor has significant influence
■ SIGNIFICANCE INFLUENCE – the power to participate in the financial and operating
policy decisions of the investee but is not control or joint control of those policies

*20% or more of voting power of the Investee

Existence of Significant Influence:
– Representation on the BOD or equivalent governing body
– Participation in the policy-making processes (dividends or other distributions)
– Material transactions between investor and investee
– Interchange of managerial personnel
– Provision of essential technical information
PFRS for SMEs
Cost Model
■ Measured initially at the transaction price + transaction cost
■ Measured subsequently at cost less any accumulate impairment losses
■ Dividends received from the associate are accounted for as income
■ Net income and changes in OCI component of the associates does not affect the
investment balance
■ Not applicable if the investment in associate has a published price quotation
Equity Model
■ Measured initially at the transaction price + transaction cost
■ Dividends received from an associate are accounted for reduction in the carrying
amount of the investment
■ Adjustments are made to reflect the investor’s share in the associate’s net
income/loss and change in the OCI component
■ Subject to impairment testing
Fair Value Model
■ Measured initially at transaction price only
■ Subsequently measured at fair value and changes in fair value are recognized in
P&L
■ Not subject to impairment testing
ABC Corp paid Php 68M on 2 Jan 2024, for 4M shares of DEF Corp ordinary shares. The investment
represents a 25% interest in the asset of DEF and gave ABC the ability to exercise significant
influence over DEF. On the date of acquisition, the following data are available:
a. The book value of DEF’s net asset was Php 192M
b. The fair value of DEF’s depreciable assets exceeded their book value by Php 32M. These assets
had an average remaining useful life of 8 years.
c. The remainder of the excess of the investment over the book value of the net assets purchased
was attributable to goodwill

DEF paid Php1.50 per share dividends on 25 Aug 2024. DEF also reported net income of Php 40M
for the year ended 31 Dec 2024. The market value of DEF’s ordinary shares at 31 Dec 2024 was
Php 18.50 per share.

a. Prepare the necessary journal entries during 2024

b. Compute for the balance of the investment income and carrying amount of the investment on 31
Dec 2024.