CHAPTER 14 FINANCIAL ASSETS @ FAIR VALUE

FINANCIAL ASSETS @ FAIR VALUE (ONLY INCLUDES DEBT & EQUITY SECURITIES)

Financial Assets held for trading (Trading Securities)

Irrevocable designated on initial recognition as at fair value through profit or loss

QUOTED equity instruments

FINANCIAL ASSETS @ FAIR VALUE THROUGH PROFIT OR LOSS

o

INITIAL MEASUREMENT FAIR VALUE ONLY (DISREGARD TRANSACTION COSTS)

SUBSEQUENT MEASUREMENT FAIR VALUE @ YEAR END

Increase:
Dr. Trading Securities
Cr. Unrealized Gain TS

XX

Decrease:
Dr. Unrealized Loss TS
Cr. Trading Securities

XX
XX
XX

SALE
Gain:
Dr. Cash
XX
Cr. Trading Securities
Cr. Gain on sale of Trading Securities

XX
XX

Loss:
Dr. Cash
XX
Dr. Loss on sale of Trading Securities
Cr. Trading Securities

XX
XX

NOTE:
1. Unrealized Gain/Loss are part of Profit or Loss
2. Transaction Costs are EXPENSED OUTRIGHT
3. The account is not necessarily Trading Securities, it may be generalized as Financial Asset at Fair Valu

FINANCIAL ASSETS @ FAIR VALUE

Investment in Equity Securities NOT held for trading but IRREVOCABLY ELECTED TO PRESENT CHANGES IN FAIR VALUE IN
OTHER COMPREHENSIVE INCOME

FINANCIAL ASSETS @ FAIR VALUE THROUGH OTHER COMPREHENSIVE INCOME

o

INITIAL MEASUREMENT FAIR VALUE + TRANSACTION COSTS

SUBSEQUENT MEASUREMENT FAIR VALUE @ YEAR END

Increase:
Dr. Investment in Equity Securities XX
Cr. Unrealized Gain OCI

XX

Decrease:
Dr. Unrealized Loss OCI
XX
Cr. Investment in Equity Securities

XX

CUMULATIVE UNREALIZED GAIN/LOSS

ORIGINAL COST - CURRENT MARKET VALUE OF SECURITIES = CUMULATIVE UNREALIZED GAIN/LOSS

SALE
Gain:
Dr. Cash
XX
Cr. Investment in Equity Securities
Cr. Gain on sale of Securities

XX
XX

Dr. Cash
XX
Dr. Loss on sale of Securities
XX
Cr. Investment in Equity Securities

XX

Loss:

UNREALIZED GAIN/LOSS of SOLD SECURITIES

Unrealized Gain:
Dr. Unrealized Gain
Cr. Retained Earnings

XX

Unrealized Loss:
Dr. Retained Earnings
Cr. Unrealized Loss

XX

XX

XX

NOTE:
1. ALWAYS TRANSFER RELATED UNREALIZED GAIN/LOSS to RETAINED EARNINGS AFTER SALE

RECLASSIFICATION

Reclassification Date is the first day of the reporting period following the change in business model
So, if the change in business model occur in 2012, the reclassification date is January 1, 2013

FAIR VALUE -> AMORTIZED COST

o
o

Year of change in business model DO THE USUAL ADJUSTMENS FOR THE RECOGNITION OF THE CHANGE IN FAIR VALUE
Reclassification Date:
Dr. Investment in bonds
Cr. Financial Assets at Fair Value

XX
XX

AMORTIZED COST -> FAIR VALUE

o
o

Year of change in business model DO THE USUAL, such as AMORTIZATION OF DISCOUNT/PREMIUM

Reclassification Date Recognize gain (Fair Value at such date - Carrying Amount) & Reclassify Investment in Bond account to
Financial Asset at Fair Value.
Dr. Investment in bonds
XX
Cr. Gain on Reclassification of Financial Asset
Dr. Financial Assets at Fair Value
Cr. Investment in bonds

XX

XX
XX

IMPAIRMENT FINANCIAL ASSET AT FAIR VALUE

o

NO IMPAIRMENT LOSS, because financial asset is always at Fair Value