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    FINANCIAL ASSET AT FAIR VALUE (103 e-NOTES)

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    Soleil Leisol
    The document defines financial assets and investments. Financial assets are held for wealth accretion through distributions like interest, royalties, and dividends or for capital appreciation. Investments are not directly involved in a company's main revenue-generating activities. Current investments are intended to be sold within one year, while non-current investments are held for over one year. Financial assets include cash, contractual rights to future cash, and equity shares. They are classified based on the business model for managing them - holding for fair value changes, holding to collect cash flows, or a combination.

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    FINANCIAL ASSET AT FAIR VALUE (103 e-NOTES)

    Uploaded by

    Soleil Leisol
    106 views3 pages
    The document defines financial assets and investments. Financial assets are held for wealth accretion through distributions like interest, royalties, and dividends or for capital appreciation. Investments are not directly involved in a company's main revenue-generating activities. Current investments are intended to be sold within one year, while non-current investments are held for over one year. Financial assets include cash, contractual rights to future cash, and equity shares. They are classified based on the business model for managing them - holding for fair value changes, holding to collect cash flows, or a combination.

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    The document defines financial assets and investments. Financial assets are held for wealth accretion through distributions like interest, royalties, and dividends or for capital appreciation. Investments are not directly involved in a company's main revenue-generating activities. Current investments are intended to be sold within one year, while non-current investments are held for over one year. Financial assets include cash, contractual rights to future cash, and equity shares. They are classified based on the business model for managing them - holding for fair value changes, holding to collect cash flows, or a combination.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    106 views3 pages

    FINANCIAL ASSET AT FAIR VALUE (103 e-NOTES)

    Uploaded by

    Soleil Leisol
    The document defines financial assets and investments. Financial assets are held for wealth accretion through distributions like interest, royalties, and dividends or for capital appreciation. Investments are not directly involved in a company's main revenue-generating activities. Current investments are intended to be sold within one year, while non-current investments are held for over one year. Financial assets include cash, contractual rights to future cash, and equity shares. They are classified based on the business model for managing them - holding for fair value changes, holding to collect cash flows, or a combination.

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    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    of 3

    FINANCIAL ASSET AT FAIR VALUE

    IASB defines investment


    ~ held by an entity for the accretion (increase) of wealth through distribution such as
     Interest For capital appreciation or for other benefits to the
     Royalties investing entity such as those obtained through
     Dividends and rentals trading relationships.

    ~ Investments are not directly identified with the operating activities of an entity and occupy only an auxiliary (supplemental) relationship to the central revenue producing
    activities of the entity.
    Purpose of Investments:
    Accretion of wealth or regular income- through interest, dividends, royalties and rentals.
    Capital appreciation- in cases of land and real estate held for appreciation and direct investments in gold, diamonds, and other precious commodities.
    Ownership control- in case of investments in subsidiaries and associates.
    Meeting business requirements- in the case of sinking fund, preference share redemption fund, plant expansion fund and other noncurrent fund.
    Protection- in the case of interest in life insurance contract in the form of cash surrender value.
    Examples of Investments
    1. Trading securities or financial asset at fair value through profit or loss
    2. Financial asset at fair value through other comprehensive income
    3. Investment in non-trading equity securities
    4. Investment in bonds or financial asset at amortized cost
    5. Investment in associate
    6. Investment in subsidiary
    7. Investment in property
    8. Investment in fund
    9. Investment in joint venture
    STATEMENT CLASSIFICATION
    Current Investments- investments that are by their very nature readily realizable and are intended to be held for not more than one year.
    Example: Trading securities are normally classified as Current Assets because these investments are expected to be realized within 12 months after the end of reporting
    period.
    Noncurrent Investments or long-term investments- investments other than current investments; intended to be held for more than one year or are not expected to be realized
    within 12 months after the end of the reporting period.
    DEFINITION OF FINANCIAL ASSET
    a) Cash
    b) Contractual right to receive cash or another financial asset from another entity.
    c) Contractual right to exchange financial instrument with another entity under conditions that are potentially favorable.
    d) An equity instrument of another entity.
    EXAMPLES OF FINANCIAL ASSETS
     CASH OR CURRENCY
    Represents the medium exchange and therefore the basis on which all transactions are measured and recognized in financial statements.

     DEPOSIT OF CASH with a bank or similar financial institution


    Represents the contractual right of the depositor to obtain cash from the bank or to draw a check against the balance in favor of a creditor in payment of financial liability.
    Gold bullion deposited in bank is not a financial asset because it is very precious the gold is a commodity.

    Financial assets representing CONTRACTUAL RIGHT TO RECEIVE CASH in the future:


     Trade accounts receivable
     Notes receivable
     Loans receivable
    In case of exchange of financial instruments with another entity, conditions are potentially favorable when such exchanges will result to gain or additional cash inflow to the
    entity. Example for favorable condition is an option held by the holder to purchase shares of another entity at LESS THAN MARKET PRICE (Discount)
     INVESTMENT IN SHARES OR OTHER EQUITY INSTRUMENTS such as trading securities can be classified as financial assets.
    NOT CONSIDERED AS FINANCIAL ASSETS Creates an opportunity to generate an inflow of cash or another financial asset but it does not give
     Intangible Assets rise to a present right to receive cash or another financial asset.
     Physical Assets such as inventory and property, plant and equipment
     Prepaid Expenses – the future economic benefit is the receipt of goods or
    services rather than the right to receive cash or another financial assets.
     Leased assets – control of such assets does not give rise to a present right to receive cash or another financial asset.

    CLASSIFICATION OF FINANCIAL ASSETS


    Under PFRS 9, paragraph 4.1.1, financial assets are classified into three (3)
    1. Financial Assets at fair value through profit or loss (FVPL) – EQUITY AND DEBT SECURITIES
    2. Financial Assets at fair value through other comprehensive income (FVOCI) – EQUITY AND DEBT SECURITIES
    3. Financial Assets at amortized cost – DEBT SECURITIES ONLY
    The classification depends on the business model for managing financial assets which may be:
    a) Hold investment in order to raise fair value changes.
    b) Hold investments in order to collect contractual cash flows.

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