FR- Passive Investment in Financial Asset Flashcards
What is the Passive Investment?
Its investment include short-term investment of idle cash and longer-term investment in future expansion
Provide what financial assets?
Can be cash, equity instrument or another contractual right to receive cash
Not inventory or PP&E
What is a financial liability
Contractual obligation to deliver cash or another financial asset to another entity
What are the three classifications of passive investment
- FVPL
- amortized cost
- FVOCI
How do you determine using FVPL
- Used if the measurement does not meet the requirement for amortized cost and FVOCI
Include: - Asset classified or incurred principally to sell or repurchase in the near term
- May use designated as FVPL, only when it significantly reduces a measurement or recognition inconsistency
Explain when amortized cost should be used
In contractual terms, financial assets must give rise on specified dates to cash flow that solely payment of principal and interest on principal amount
Requires that the company not purchase investments to make a profit by selling them before maturity
When do you use FVOCI for passive investment
Selling investments before maturity to realize a profit, rather than holding them until maturity
Equity investment designated as FVOCI- allowed for investments that do not qualify as held for trading
What is the initial measurement that is recorded of passive investment for all three classification
They are all recorded at the fair value - the price that would be received in an ordinary transaction
Is the transaction cost associated with the purchase of investment
FVPL - The transaction costs are expenses in profit or loss
Amortized cost - transaction costs are capitalized when incurred
FVPCI - Transaction costs are paid on the purchase of investment and are capitalized
What are the subsequent measurements determined for all three classification
FVPL - Are measured at FV, gain and losses recognized in profit or loss
Amortized cost - The effective interest method is used for the financial asset or financial liability
Premium may arise on the investment if the stated rate interest is greater than the market rate
FVOCI - Are measured at FV with gain or losses
Gain or losses reported on OCI
Interest income is determined using the effective interest method recognized in profit or loss
When is impairment determined for subsequent measurement
FVPL - Investments are adjusted at FV in the reporting period, impairment losses and recoveries are not separated
Amortized cost - Asset is impaired when the present value of estimated future cash flow
Impairment loss is recorded in profit or loss, and the carry value of the asset is reduced
FVOCI - Any impairment losses on debt investment classified as FVOCI are adjusted to fair value in each reporting period
When should the passive investment be reclassified
- It is based on the entity business model for managing those asset
- If there are changes to the business model, must be significant to entity operation and demonstrable to external parties
When should passive investment be derecognized
- FVPL - the difference between carrying amount and the consideration received is recognized in profit or loss
Amortized cost - gain or loss unrecognized in difference between carrying amount of the asset and consideration received
FVOCI 0 carrying amount and consideration is recognized through OCI
Debt investment classified as FVOCI sold, cumulative unrealized gain or losses must be transferred to profit or loss
What is the handbook used under ASPE
ASPE 3856 - Financial instrument
Difference - classified if quoted in active market
What is the Handbook that is used for passive investment under IFRS
IFRS 7 - Disclosure
IFRS 9 - Financial instrument
IAS 32 - Presentation of Financial instrument
