AUDIT OF INVESTMETS: INVESTMENT IN EQUITY SECURITIES

OVERVIEW CLASSIFICATION
FVPL vs. FVOCI  Less than 20% - FVPL or FVOCI (Fair value
 Initial measurement (transaction cost method)
recognition differences)  20 to 50% - Investment in Associate (Equity
 Acquisition in between dates of declaration Method)
and ex-dividend date
 Computation of Unrealized gains and Initial measurement (transaction cost recognition
losses differences)
 Derecognition  FVPL – Acquisition cost excluding
o Sale of investment between dates of transaction costs (acquisition cost as is)
declaration and ex-dividend date o Kaya kapag jinournal entry ito,
 Computation of Carrying Value of Securities kasali pa pati account titles ng
- Sale of Securities transaction costs
 Dividends  FVOCI – Acquisition cost plus transaction
o Property dividends costs
o Share dividends o Kapag jinournal entry ito, maikli
o Cash dividends lang… kasi yung amount ng
 Share split transaction costs ay kasama na sa
o Split up investment account
o Split down
Acquisition in between dates of declaration and ex-
dividend date
Jan. 5 Jan. 5-31 Jan. 31
Date of Acquisitions Ex-date
Declaration during this date
would require
recognition of
dividend
receivables

 FVPL – Acquisition cost excluding

transaction costs and deduct the amount
of dividend receivable
o Kaya kapag jinournal entry ito,
kasali pati account titles ang
dividend receivable

Account Titles No dividend With dividend

Investment - FVPL 1,500,000 1,468,000
Dividend Receivable - 32,000
Brokerage Fee 10,000 10,000
Commission expense 5,000 5,000

 FVOCI – Acquisition cost plus transaction

costs pa din
o No journal entry for dividends during
purchase; only
Formula for Derecognition entered
(FVPL as debit to
and FVOCI)
Computation of Unrealized gains and losses
cash during receipt
 Kind of accounts FVPL FVOCI
o Thus, FVOCI is not affected here
Consideration received xx xx
NOTES o Unrealized
BY: JOSHUA gain
J. LISING or loss
| College – P&L –
of Accountancy Less: Dividend acquired xx xx
nominal accounts
(if dividend-on) (sa acquisition wala;
 Closed every end of accounting ngayong sale
mayroon na)
period
 TRANSACTIONS SUBSEQUENT TO Share Dividends
ACQUISITIONS Again, ang entry ng share dividends once received:
Investment account
NOTES BY: JOSHUA J. LISING | College of Accountancy
Property Dividends Unrealized gain – P&L (or OCI)
- Accounting is depende kung anong  Record at fair value as of date of receipt
property ang binigay as dividend  Take note: Existing old shares will be
Split down - original shares are replaced by a Stock Split or Share Split
smaller number of shares Remember: Whether stock split or share split, it is
accounted as if existing shares are removed and
Split up Split down replaced by new shares (new quantity of shares)
Times 4/2 Divide by 4 (times 2?)
replaced by a larger replaced by a smaller Split up – original shares are replaced by a larger
number of shares number of shares number of shares
 Ex. 5,000 shares was split on a 4-for-2
Special assessment basis
 Ex. Ambiong company made a special  Tip: Apply fraction. Treat the 4-for-2 as a
assessment of P5 per share. fraction.
 Debit investment account, credit cash.  So 5,000 * 4/2 = 10,000 new shares
 Accounted as additional cost of replacement
investment.
 It’s an additional contribution required by an Notes for Split up (may apply for split down too):
entity to its shareholders especially during  FVPL vs. FVOCI – the amount of old shares
financial difficulties. could differ if there are transaction costs
when old shares are acquired
Stock right / Rights issue  Date of split: May ibibigay na fair value ng
Declaration Ex-Dividend Record Payment shares
Date Date Date Date  Formula for unrealized GL at year end:
Cut-off for o New shares xx
shares traded
o Special assessment* xx
o Less: FV at year end (xx)
Shares selling Shares selling
o Unrealized gain (loss) xx
rights-on ex-rights
Between declaration After date of record
Nov. 14 – split up date Dec. 31 – year-end
date and record date of and before expiration Unrealized gain (loss) on Unrealized gain (loss)
stock rights date split up on remeasurement
Shares and stock Shares and stock So magkakaroon ng net unrealized gain – P&L
rights cannot be sold rights can be sold (OCI)
separately separately (pwede
(magkasama sila) magkahiwalay)

FVPL FVOCI Reclassification between Trading securities and

Cash = amount of Cash + stock rights = FVTOCI
NOTES BY: JOSHUA
investment J. LISING | amount
in FVPL College ofof
Accountancy
Investment - Not allowed under PFRS.
in OCI - No gain or loss will be recognized.
Gray area: Bakit sa FVPL hindi inaccount yung stock
 Regular way purchase or sale of a financial asset
 Purchase or sale of a financial asset under
a contract whose terms require delivery of
the asset

Trade date Settlement date

accounting accounting
Financial asset/liability Financial asset/liability
is recognized on the is recognized on the
date the enterprise date it is delivered
commits to the
purchase
Record ka na agad ng Wala ka muna
FVPL or FVOCI on irerecord
date of commitment
and accounts payable
Year-end: Debit Year-end: Debit
undrealized gain (loss) unrealized gain (loss)
to FVPL or FVOCI to Accounts receivable
whether FVPL or EXCHANGE OF FINANCIAL ASSET
FVOCI
Settlement: Settlement: Exchange of one financial asset into another
financial asset
 Settlement of AP  Derecognition
through cash of AR
Ex. Acquired ordinary shares in exchange of
 Additional debit to recognized at
preference shares
FVPL or FVOCI of year-end
 Fair value – ord. shs. xx
unrealized gain  Recognition of
(loss) investment paid  Carrying value – pref. shs. xx
through cash  Loss on exchange xx
 Unrealized gain
(loss) if any Exchange of a PPE for financial asset
Note: No significant differences between FVPL
and FVOCI. PPE – is a non-financial asset. During acquisition
of financial asset using a non-financial asset, follow
FAAC on date of No entry
the order of priority:
commitment: recognize
1. Fair value of the financial asset received
an AR and gain on
2. Fair value of nonfinancial asset given
sale kaagad (kaya
3. Cost or book value of the nonfinancial asset
wala nang gain on sale
given
sa dulo)
FAAC on year-end: No FAAC on year-end: No
Note: Record the PPE at the historical cost amount
entry entry
and not fair value. It would be the basis for getting
FAAC on settlement: FAAC on settlement:
the unrealized gain (loss).
Cash and AR; amount Cash and AR; amount
is based on amount on is based on amount on
Exchange of financial asset for a PPE
date of commitment date of commitment
(pati gain on sale on
Follow this order of priority:
date of commitment)
1. Fair value of financial asset given-up
2. Fair value of the asset received
3. Cost or book value of the nonfinancial asset
given up

Baka malito ka kasi may given na fair value ng

shares at the date of exchange. Pero hindi ka na
magrerecord ng gain kasi for exchange na yung
shares on that day. Hence, carrying value ang
NOTES BY: JOSHUA J. LISING | College of Accountancy
basis natin sa amount of shares.

Instead, yung fair value ng shares mo ay

NOTES BY: JOSHUA J. LISING | College of Accountancy