Lecture Notes on Investment
Equity security (Control) - Investment in Subsidiary (PFRS 3)
Equity security (significant influence)- Investment in Associate - PAS 28
Equity security (without significant influence, with market value)- Fair Value- PFRS 9
Basis of Classification Classification/measurement
Business Model: ‘Hold to Collect’ Amortized cost
Cash Flow Characteristics: ‘SPPI’ (e.g. debt instrument)
Business Model: ‘Hold to Collect and Sell’ Fair value- OCI (mandatory)
Cash Flow Characteristics: ‘SPPI’ (e.g. debt instrument)
“Solely Payments of Principal and Interest”
Business Model: not defined Fair Value- PL
Cash Flow Characteristics: not defined
e.g. held for trading securities and equity instrument)
Exceptions:
1. Investment in Equity securities Fair value-OCI (irrevocable election)
2. Eliminates or significantly reduces ‘accounting Fair value-PL (irrevocable designation)
mismatch’
The irrevocable choices are available only on initial recognition. Once the choice is made, the
classification is permanent until the financial asset is derecognized.
Initial measurement
, Financial assets are initially measured at fair value plus transaction costs, except FVPL. FAFVPL
are initially measured at fair value. The transaction costs are expensed immediately
Subsequent measurement
1. Amortized cost
2. Fair value-OCI
3. Fair value-PL
Classification Presentation gains and losses from Presentation of other gains and losses
changes in FV - PL
Amortized cost Not recognized From derecognition (sale),
amortization, interest received and
impairment - PL
Fair Value-PL PL From derecognition (sale), interest
/dividend received - PL
Fair Value OCI – OCI From derecognition (sale),
mandatory amortization, interest received and
impairment - PL
When the financial asset is
derecognized, the cumulative gain or
loss previously recognized as OCI in
equity is reclassified to PL (with
recycling).
Equity security (Control) - Investment in Subsidiary (PFRS 3)
Equity security (significant influence)- Investment in Associate - PAS 28
Equity security (without significant influence, with market value)- Fair Value- PFRS 9
Basis of Classification Classification/measurement
Business Model: ‘Hold to Collect’ Amortized cost
Cash Flow Characteristics: ‘SPPI’ (e.g. debt instrument)
Business Model: ‘Hold to Collect and Sell’ Fair value- OCI (mandatory)
Cash Flow Characteristics: ‘SPPI’ (e.g. debt instrument)
“Solely Payments of Principal and Interest”
Business Model: not defined Fair Value- PL
Cash Flow Characteristics: not defined
e.g. held for trading securities and equity instrument)
Exceptions:
1. Investment in Equity securities Fair value-OCI (irrevocable election)
2. Eliminates or significantly reduces ‘accounting Fair value-PL (irrevocable designation)
mismatch’
The irrevocable choices are available only on initial recognition. Once the choice is made, the
classification is permanent until the financial asset is derecognized.
Initial measurement
, Financial assets are initially measured at fair value plus transaction costs, except FVPL. FAFVPL
are initially measured at fair value. The transaction costs are expensed immediately
Subsequent measurement
1. Amortized cost
2. Fair value-OCI
3. Fair value-PL
Classification Presentation gains and losses from Presentation of other gains and losses
changes in FV - PL
Amortized cost Not recognized From derecognition (sale),
amortization, interest received and
impairment - PL
Fair Value-PL PL From derecognition (sale), interest
/dividend received - PL
Fair Value OCI – OCI From derecognition (sale),
mandatory amortization, interest received and
impairment - PL
When the financial asset is
derecognized, the cumulative gain or
loss previously recognized as OCI in
equity is reclassified to PL (with
recycling).
