TOPIC 6 Flashcards
(12 cards)
What are Financial Assets?
They are assets that arise from a contractual agreement on future cashflows or from owing equity of another entity.
They are included in the category of Financial Instruments, which are contrats that generate a financial asset to one party and a financial liability to the other.
We will always operate from the investors POV.
The 4 Financial Asset Categories
- Financial Assets measured at fair value through Profit or Loss.
- Financial Assets measured at amortised cost.
- Financial Assets measured at fair value through Other Comprehensive Income (Equity)
- Financial Assets measured at cost.
Category 1: Financial Assets measured at fair value through Profit or Loss
They are assets in which the business model is to hold them for trading. They are bought and sold quickly to obtain a gain. Shares or bonds as a short term investment.
Category 2: Financial Assets measured at amortised cost
The business model consists of holding the assets in order to collect contractual cashflows. This cashflow that I collect has principal and interest. I don’t intend to trade until maturity.
Category 3: Financial Assets measured at fair value through O.C.I or Equity
Debt securities where contractual agreement results in scheduled payments of principal and interest. I don’t intend to hold until maturity, they are not necessarily held for trading and don’t take control over another company.
Category 4: Financial Assets measured at cost
Shares of other entities held with the intention of controlling or influencing the entity. Fair value cannot be reasonably measured or valued.
Entries for Category 1
- Initial Measurement
D
Current Investments in Equity Instruments (540)
Bank Commissions and Fees (626)
C
Cash in Banks (572)
- Subsequent Measurement (Gains)
D
Current Investment in Equity Instruments (540)
C
Gains on Fair Value measurement of Financial Instruments (763)
- Subsequent Measurements (Losses)
D
Losses on Fair Value measurement of Financial Instruments (663)
C
Current Investments in Equity Instruments (540)
Entires for Category 2
- Initial Measurement
D
Non-current Loans (252)
(Amortised Cost)
Current Loan (542)
(Principal Amotized)
C
Cash in Banks (572)
- Accrual of Interest (Monthly and Yearly)
D
Current Interest on Loans (547)
(Year Interest / 12)
C
Financial Income from Loans (762)
- Collection of Interest and Principal
D
Cash in Banks (572)
C
Current Loans (542)
Current Interest on Loans (547)
- Reclassification
D
Current Loans (542)
C
Non-current Loans (252)
Entries Category 3
- Initial Measurement
D
Current Investment in Equity Instrument (540)
C
Cash in Banks
- Subsequent Measurement: Gains
D
Current Investment in Equity Instrument (540)
C
Gains from FA measured at Fair Value through equity (900)
- Subsequent Measurement: Losses
D
Current Investments in Equity Instruments (540)
C
Losses from FA measured FV through equity (800)
IMPORTANT: Groups 8 and 9 will need to be closed eery year and reclassified with: Group Valuation adjustments in FA measured in FV through equity (133)
Entries Category 4
D
Current Investment in Equity Instrument (540)
C
Cash in Banks (572)
Impairment Categories 2+4
D
Impairment Losses FA (6XX)
C
Impairment Financial Assets (29X)
Impairment Category 3
The exception is that if a gain in equity (9xx) has been previously recorded, it will have to be reversed with a (8xx) account. Then record the excess impairment if necessary.
D
Transfer of gains on FA measured through FV through equity
Impairment Losses (Remaining amount)
C
Impairment of FA
