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FAR > Investment in Equity Securities > Flashcards

Investment in Equity Securities Flashcards

1
Q

Investment in Equity Securities

Example of financial assets are:

A
  1. Cash and cash equivalents
  2. Receivables
  3. Investments
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2
Q

Investment in Equity Securities

Exmaple of financial libas are:

A
  1. Payable, such as accounts, notes, loans and bonds
  2. Lease liabilities
  3. Security deposits and other returnable deposits
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3
Q

Investment in Equity Securities

3 classifications of financial assets:

A
  1. FVPL
  2. FVOCI
  3. AC

FVPL & FVOCI - equity and debt securities
AC - debt securities only

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4
Q

Investment in Equity Securities

  1. Governing standard?
  2. Ownership Percentage?
  3. Accounting?
A
  1. PFRS 9
  2. Less than 20%
  3. Fair Value Method or Cost Method
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5
Q

Investment in Equity Securities

Explain 1. Initial and 2. Subsequent Measurement, 3. Presentation of changes in FV, and 4.FS presentation for:
a. FVPL
b. FVOCI

A
  1. Initial Measurement
    a. Fair Value - Transaction Costs is outright expense
    b. Fair Value + Transaction Costs
  2. SM
    a. FV
    b. FV
  3. Presentation of changes in FV (Unrealized Gain or Loss)
    a. P or L
    b. OCI
  4. FS Presentation
    a. Current Asset
    b. Non Current Asset
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6
Q

Investment in Equity Securities

How to know if classified as FVPL or FVOCI?

A

FVPL
1. Financial Assets Held for Trading aka trading securities
2. Irrevocably designated on initial recognition as FVPL
3. Other investment in qouted equity instruments

Simple lang, at initial recognition, measured talaga thru FVPL, UNLESS THE ENTITY MAKES AN IRREVOCABLE ELECTION TO MEASURE THEM AT FVOCI (ELECTION)

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7
Q

Investment in Equity Securities

Transaction costs includes

A

Fees and commissions paid to:
1. agents
2. Advisers
3. Brokers and dealers
4. Levies by regulatory agencies and securities exchange
5. Tranfer taxes and duties

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8
Q

Investment in Equity Securities

Explain Reclassifications

A

An entity may make an irrevocable election to present in OCI. Thus, transfer into and out of investment at FVPL is not allowed

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9
Q

Investment in Equity Securities

Explain Sale for:
1. FVPL
2. FVOCI

Explain the treatment for (realized) gain or loss on disposal.

A
  1. FVPL
    Sales Price
    Less: Dividends On
    Less: Transaction Costs incurred on the sale
    =Net Proceeds
    Less CA of Investment Sold
    =Realized Gain or Loss
  2. FVOCI
    Before disposal, the financial asset is remeasured to its FV with gain or loss recognized in OCI/OCL. Thus, as a result, the FV is equal to the sales price.

Simple lang, irevalue mo muna. Then benta mo na.
Ex:
Dr. Inv in ES -FVOCI
Cr. Unrealized gain

Dr. Cash
Cr. Inv in ES - FVOCI

Dr. Unrealized Gain
Cr. RE
Lam mo na yan pag loss!

In conclusion, NO REALIZED gain or loss. Kasi yung balance sa unrealized gain or loss shall be trasferred to RE.

Note:
Same method and FVPL at Cost method

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10
Q

Investment in Equity Securities

  1. Types of Dividends and 2. if considered as dividend income? 3. Then recognition?
A
  1. Cash - Yes - Face Value / Cash Reveived
  2. Property - Yes - FV of asset received AS OF DATE OF DECLARATION
  3. Shares - No - No change sa book ng investor. Same total cost of shares. Babago lang yung number of shares at cost per share.
  4. Share dividends in leiu of Cash - Yes - same as cash
  5. Cash in leiu of shares - No
  6. Liquidating Div (dividends out of Capital) - No (reduction from CA)
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11
Q

Investment in Equity Securities

Relevant Dates on Dividends?

A
  1. Date of Declaration - BOD formally announces the distribution of dividends
  2. Date of Record - closed the registration. Only those who are listed as of this date are entitled to receive dividends
  3. Date of Payment - disteibuted

Dividend revenue is recognized at the date of Declaration

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12
Q

Investment in Equity Securities

Explain Dividend On and Ex Dividend upon purchase

A

Dividend On (bet. Decla and Record)
*Purchase price includes dividends
*dividens should be exluded from initial measurement
Dr. Investment in EI
Dr. Dividend Income/Receivable
Cr. Cash

Pag na received,
Dr. Cash
Cr. Div Income/Receivable

Basta, NO DIVIDEND INCOME SHALL BE RECOGNIZED!

Ex Dividend (bet. Record and Payment)
*Dito, purchase price excludes dividens na
*So normal entry lang. Wala ng dividends.
Dr. Investment
Cr. Cash

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13
Q

Investment in Equity Securities

Classification and treatment for Investment in Equity Securities - Preference Shares?

A

*Investement in Equity Securities regardless of ownership
*PFRS9
*FV or Cost Method

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14
Q

Investment in Equity Securities

Explain entry process for liquidating dividend

A
  1. Just know the amount of liquidating and non liquidating portion sa total dividend s received (given naman yun kungbilan percentage ang liquidating)
  2. Entries:
    Dr. Cash (reveived)
    Cr. Investment acct (liquidating)
    Cr. Dividend Income (non liquidating)
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15
Q

Investment in Equity Securities

Entry for Share Dividend i leiu of Cash?

A

Mostly dito, investor opted to received shares instead of cash

The shares received shall be recorded at FV lang then:
Dr. Investment Acct
Cr. Div Income

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16
Q

Investment in Equity Securities

Explain the process on Cash receive in leiu of share

A

Choice ni investor

*kunin mo muna yung new cost per share (parang share div)
*Then assume to have been received and sold
*mostly may “Loss on investment” - yung diff sa na received na cash vs sa cost lf shares assumed sold

Dr. Cash (received)
Dr. Loss on investement (PL)
Cr. Investment In Eq Securities

17
Q

Investment in Equity Securities

Explain Share split

A

*Investee redeem shares and replace with new shares (normally larger no. of shares - split up)
*two types, split up (2 for 1) or down (1 to2)
*Total cost of shares remain the same!
*Magbabago lang yung no. of shares at par value (depends kung up down)
*do not affect assets, liabs and equity

18
Q

Investment in Equity Securities

Explain accounting for special assessment

A

BOD requiring investors to make additional contributions or investments due to financial difficulty

Dr. Investment
Cr. Cash

19
Q

Investment in Equity Securities

Mabigat ang accounting for Stock Rights.
So Ireview mo

But atleast provide the concept.

A

*rights to purchase from the newly issued shares
*preemptive right or right of preemption
*evidence by share warrants
*measured at FVPL

20
Q

Redeemable Preference share is classified as?

A

Debt Securities

21
Q

The irrevocable election/designation of FVOCI is applicable only to?

A

Investmenr in equity securities held for NON TRADING PURPOSES

Kasi pag held for trading/buy and sell or (trading securities), matic FVPL na agad

FAR (18 decks)

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