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Financial Asset at Fair Value: Intermediate Accounting 1 Ray Patrick S. Guangco, CPA

Here are the journal entries for 2019 and 2020: 2019: Investments - Security One Dr 2,200,000 Security Two Dr 700,000 Security Three Dr 1,600,000 Security Four Dr 2,000,000 Cash Cr 6,500,000 To record the purchase of investments Investment Income Dr 100,000 Security One Cr 100,000 Security Two Cr 300,000 Unrealized Gain on Investments Cr 300,000 To record the change in fair value of investments held for trading 2020: Investment Income Dr 100,000 Security Two Cr 100,000 Unreal

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82 views17 pages

Financial Asset at Fair Value: Intermediate Accounting 1 Ray Patrick S. Guangco, CPA

Here are the journal entries for 2019 and 2020: 2019: Investments - Security One Dr 2,200,000 Security Two Dr 700,000 Security Three Dr 1,600,000 Security Four Dr 2,000,000 Cash Cr 6,500,000 To record the purchase of investments Investment Income Dr 100,000 Security One Cr 100,000 Security Two Cr 300,000 Unrealized Gain on Investments Cr 300,000 To record the change in fair value of investments held for trading 2020: Investment Income Dr 100,000 Security Two Cr 100,000 Unreal

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Claire Magbunag Antido
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We take content rights seriously. If you suspect this is your content, claim it here.
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FINANCIAL ASSET

AT FAIR VALUE
Intermediate Accounting 1
Ray Patrick S. Guangco, CPA
LEARNING OBJECTIVES
• Define a financial asset
• To know the classifications of financial assets based on the
business model of managing assets.
• To know the initial and subsequent measurement of
financial assets.
• To identify the financial assets that can be measured at fair
value through profit or loss.
LEARNING OBJECTIVES
• To understand the measurement of the following
investments:
• Equity investment @ FVOCI
• Debt investments @ Amortized cost
• Debt investments @ FVOCI
INVESTMENTS
Investments are assets held by an entity for the
(1)Accretion of wealth
(2)Capital appreciation
(3)Ownership control
(4)Meeting business requirements
(5)Protection.
CLASSIFICATION
• Current investments are investments that are by their very
nature readily realizable and are intended to be held for not
more than one year.
• By residual definition, noncurrent investments are
intended to be held for more than one year.
FINANCIAL ASSET
a. Cash
b. A contractual right to receive cash or another financial asset
from another entity
c. A contractual right to exchange financial instrument with
another entity under conditions that are potentially
favorable.
d. An equity instrument of another entity.
CLASSIFICATION
a. Financial Asset @ Fair Value through Profit or Loss
b. Financial Asset @ Fair Value through Other
Comprehensive Income
c. Financial Asset @ Amortized Cost
BASIS FOR CLASSIFICATION
a. To hold investments in order to realize fair value changes.
b. To hold investments in order to collect contractual cash
flows.
FINANCIAL ASSETS @ FVPL
(1)Held for trading (Debt and Equity Securities)
(2)All other investments in quoted equity instruments
(3)Financial assets that are irrevocably designated on initial
recognition as at FVPL.
(4)All debt investments that do not satisfy the requirements
for measurement at amortized cost and @ FVOCI
EQUITY INVESTMENTS @ FVOCI
An entity may make in irrevocable election to present in other
comprehensive income or OCI subsequent changes in fair value
of an investment in equity instrument that is not held for trading.
DEBT INVESTMENT @ AMORTIZED
COST
Financial asset shall be measured at amortized cost if both of the
following conditions are met:
a. Business model: Hold to collect
b. Contractual cash flows: Solely payments of principal and
interest
DEBT INVESTMENT @ FVOCI
Financial asset shall be measured at amortized cost if both of the
following conditions are met:
a. Business model: Hold to collect and sell
b. Contractual cash flows: Solely payments of principal and
interest
INITIAL MEASUREMENT
An entity shall measure a financial asset at fair value plus, in
the case of financial asset not at fair value through profit or
loss, transaction costs that are directly attributable to the
acquisition of the financial asset.
SUBSEQUENT
MEASUREMENT
a. Fair value through profit or loss (FVPL)
b. Fair value through other comprehensive income (FVOCI)
c. Amortized cost
QUESTIONS?
During 2019, the first year of operations, Guangco Company purchased
the following equity securities:
Market Value Market Value
December 31, December 31,
Cost 2019 2020
Security One P2,200,000 P1,400,000 P900,000
Security Two P700,000 P1,000,000 P1,100,000
Security Three P1,600,000 P1,500,000 P1,600,000
Security Four P2,000,000 P2,500,000 P1,200,000
Security One and Security Two are held for trading and Security Three
and Security Four are measured as at fair value through other
comprehensive income by election. During 2020, the entity sold one-half
of Security One for P1,000,000, and one-half of Security Four for
P1,300,000
Required:
1. Prepare journal entries for 2019 and 2020.
2. How much of the unrealized gain or loss of Security One and Two
will appear in the statement of changes in equity in 2020?
3. How much of the unrealized gain or loss of Security Three and Four
will appear in the statement of changes in equity in 2020?

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