Financial Accounting and Reporting Lecture Notes

PFRS 9: Financial instrument – Equity Instrument of Another Entity

 Investment in equity securities – Representing ownership interest in an equity (e.g. Ordinary shares or
Preference shares or the right to acquire ownership interest (e.g. Share option, Shares warrants and etc.) This term however
does not encompass callable or redeemable preference share, treasury share and convertible bonds
 Classification of equity securities
1. Investment in Subsidiary – When the ownership interest is more than 50%
2. Investment in Associate – When the Investor has significant influence over the investee in the absence
of evidence to the contrary, significant influence should be presumed when the investor hold 20% or more
but not exceed 50% of the investee’s voting stocks
3. Other Equity Securities (PFRS 9 Financial Instrument) – Are investment in the investee’s equity
without controlling interest or significant influence. They are normally classified as:
I. Marketable – Equity securities with readily determinable market value (e.g. Trading
Securities(FVPL) and Available for Sale(FVOCI)).
II. Non – Marketable – Equity securities without readily determinable market value

In Summary:
Holding of less than 20% Holding of 20% to 50% Holding of more than 50%
Level of Influence Little or more Significant Influence Control
Valuation Method Fair value Method Equity Method Consolidation Method

 Designation of Investment in Equity Securities (PFRS 9)

1. Investment Security to Profit and Loss ( FVPL) – These are equity securities that are acquired
principally for the purpose of generating a profit from short-term fluctuations in price or dealer’s margin
2. Investment Security to Other Comprehensive Income(FVOCI) – Are those Financial assets that are
not (a) loans and receivables originated by the enterprises (b) financial asset for trading

In Summary PFRS 9
Trading Securities/FA- FVPL Available for Sales/FA-FVOCI
Quoted Yes No
Unquoted* Yes* No
Held for Trading Yes No
Nott Held for Trading Yes Yes**
*PAS 39 at Cost (if not determinable)
**Irrevocable designation

 Accounting for Financial asset – Equity Securities (PFRS 9)

Transaction Cost Expense Capitalized

Dividends Income Income
SNI/SNL/SOCI N/A N/A
Carrying Value at BS Date Fair Value Fair Value
Unrealized Gain/Loss* Profit or loss OCI net of tax
Cummulative UG/UL or Accum OCI N/A Equity Section of SFP
 *Unrealized Gain/loss
Statement of Comprehensive income (For the period) Statement of Financial Position (As of)
 
Change in fair value during the current period Fair Value. XXX
Less: Original Cost. (XXX)
=Accumulated UG/UL(Equity). XXX

Note: Fair value Adjustment Account – Dr/Cr

1. Debit =  Fair value (Unrealized Gain)
2. Credit = Fair Value (Unrealized Loss)

 Sale/Disposal of Financial Instrument

 Trading Securities/ FVPL  Net Selling Price XXX
Less: CV(FV). (XXX)
= Gain or loss (PL) XXX

 Available for Sale/FVOCI  PAS 39 (Old Standard)

Net Selling Price XXX
Less: CV(FV) (XXX)
= Gain or loss XXX

 PFRS 9 (New Standard)

Selling Price*. XXX
Less: CV(FV). (XXX)
=Retained Earnings. XXX

*Not deducted cost to sell(Separate Account)

Note: Any accumulated Unrealized Gain or loss should be closed to
Retained Earnings upon disposal of financial assets

 Dividends
1. Cash Dividend
Upon Declaration Cash/Dividend Receivable XXX
Dividend Income XXX
2. Property Dividend (FV@ Declaration Date)
Upon Declaration Non-Cash Asset/Dividend Receivable XXX
Dividend Income XXX
3. Share/Bonus Issue/Stock dividend
I. Same  Memo Entry
II. Different  FV Shares received
PAS 39  Investment – New XXX
Investment – Old XXX
PFRS 9 Investment – New XXX
Dividend Income XXX
 Note: As if Approach
 Share received in lieu of Cash Dividend (As if Purchase of Investment)
 Dividend Income
Priority 1. Fair of shares received
Priority 2. Cash Dividend that would have been received
Entry:
Financial Asset – FVPL/FVOCI XXX
Dividend Income XXX

 Cash Received in Lieu of share Dividend (As if Sales of Investment)

Gain or loss is recognized
Entry:
Cash XXX
Loss on Investment XXX
Financial Asset- FVPL/FVOCI XXX
Or
Cash XXX
Financial asset- FVPL/FVOCI XXX
Gain on Investment XXX