b.

Equity Investments at Fair Value through Other

Comprehensive Income (non trading)

INVESTMETS IN SECURITIES
Security- an interest or a share in a debt or equity of
another entity that is represented in a financial
instrument and is one that is being dealt in on capital
marks

Reported at fair value plus directly

attributable transaction costs
Part of noncurrent asset in balance sheet
Transaction costs = capitalized
Unrealized gains and losses on EI-OCI
appear on the balance sheet under equity
(>accu. OCI>OCI> unrealized gains on EIOCI)

1. Equity Securities- those that represent

ownership in a company or rights to acquire
ownership interests at an agreed-upon or
determinable price; include preference shares
(preferred stock), ordinary shares (common
stock), share warrants or stock rights, call
options and put options = part owner
2. Debt Securities- instruments representing a
creditor relationship w/ an enterprise. ;
characteristics (1) maturity value (2) periodic
interest payments (3) maturity date; include
Treasury Bills and warrants, corporate bonds,
convertible debt and commercial papers =
creditor or utang

Step 1: acquisition- record EI at fair value times

number of shares. Ignore par! Then ADD all
other transaction costs to EI
e.g.

e.g.

I.

Share Split
Restructuring of capital by changing the number
of shares w/o affecting its retained earnings
and legal capital, accompanied by an increase
or decrease in the par or stated value
Memo entry only
Step 1: get new # of shares =
existing shares X share split ratio

xx
xx

E.g.
xx

Equity Investment-FVPL
xx
Unrealized gains on EI-PL xx

2000 x 2:1 = 4000

2000 x 1:2 = 1000

Step 2: get new par value of shares =

Step 2: change in fair value- Fair Value minus

Carrying Cost = gain is credited, while loss is
debited as Unrealized loss on equity
investments-PL
e.g.

Unrealized gains & losses on EI-OCI xx

Retained Earnings
xx

TRANSACTIONS SUBSEQUENT TO INITIAL RECOGNITION

Step 1: acquisition- record EI at fair value times

number of shares. Ignore par! Expense all other
transaction costs
Equity Instruments-FVPL
Brokers Commission
Cash

xx

Step 3: transfer to Retained Earnings- the

cumulative balance of the Unrealized Gains and
Losses (if the entity chooses to do so)

a. Equity Investments at Fair Value through Profit

or Loss (trading or non trading)

e.g.

xx

Step 2: change in fair value- same as in (a)

RECOGNITION PRINCIPLE FOR FINANCIAL ASSETS AT

FAIR VALUE

Reported at fair value at initial recognition

and each reporting date
Part of current asset in balance sheet
Transaction costs = expensed
Unrealized gains on EI-PL appear on the
income statement until which it is
transferred to Realized EI-PL on the icome
statement

Equity Investments-FVOCI
Cash

carrying value
New # of shares
II.

Dividends
corporate distributions to its shareholders
proportionate to the # of shares held by the
latter
may be in the ff forms:


(a) Cash dividends
Recognized as Income or a Receivable on the
part of the shareholder
Dividend on = between date of record &
declaration
3 important dates:
Date of declaration payment of dividends
is approved by the Board of Directors;
Entry is: Dividend Receivable
Dividend income
Date of record closing of registration for
shareholders who are entitled to dividends;
No entry
Date of payment dividends are distributed
to shareholders; Entry is Dr. Cash
Cr. Dividend Receivable

Step 1: get new par value of shares =

carrying value
New # of shares
Stock dividends in another class

Selling of shares dividend on

To get gain on sale (per share) = Selling price
without the dividend revenue minus
carrying value of each share
Entries:
Cash (selling price x shares)
Dividend revenue (dr x shares)
Equity Inv-FVPL (cv x shares)
Gain on sale of equity invs.
Or if youre the buyer Dr. Equity, and
dividend receivable Cr. Cash

Not an income. Represent return of

invested capital. Usually from a wasting
asset corp (w Cr. income)or a dissolving
corp
[all multiplied by total shares]
Cash= total dividends paid
Dividend revenue= comes from the
current year earnings
Equity investments= from the RE
Entries:
Cash
xx
Dividend revenue
xx
Equity investments xx

(b) Stock dividends (Bonus issue or Share dividend)

Investee company distributes, as dividends,
shares in the same class held by shareholders,
or a stock different which is diff. from the
original shares.
Stock dividends of the same class

Not an income. The original cost of the

investment is apportioned between the
original shares and the stock dividends on
the basis of market value of each at date of
receipt
Similar to property dividends
Entry: Equity Investment
xx
Dividend Revenue
xx
(ratio x # of shares x FMV)

(c) Property dividends

Are considered as income and recorded at fair
value (Dr. noncash asset Cr. Dividend income)

Liquidating dividends

This increases the number of shares held by

each shareholder, w/o any change in the
shareholders equity balance or net assets of
the entity (thus, not an income)it only
adjusts the carrying value per share held by
the investor
Memo entry only (eg. received XX shares
representing 20% bonus issue)

Equity investments

Recorded as (ratio x # of shares x FMV)

ratio=outsider/distributor
(d) Scrip dividends
Like cash dividends, but as a receivable.
Compute for interest at the time of distribution
III.

Stock Rights
Right issue or pre-emptive right is a legal right
granted to shareholders to subscribe for new
shares (1:1) issued
by a corporation at a specified price during a
definite period, they are then considered as
securities held for trading and are, therefore
measured at fair value
memo entry only for the record of receipt
Exercise of the right- entry
o Equity investments= stock rights x FMV of
shares at the date of exercise
Cash= stock rights x subscription price
(not par!) at issuance date of rights

Invst income= balancing figure

Selling the rights
o Cash = stock rights FV x orig. # of stock rights
Invst income
Year end recognition for unexercised and
unexpired stock rights
o Stock rights (FVPL)= same as selling the right
Invst income
Theoretical Market Value of stock rights
Used in the absence of actual fair value of
stock rights.
Subscription price- current asking price
Carrying value- book price; price bought at;
last price revalued at
o

TMV= stock rights FMV subscription price

# of rights needed to buy 1 share
Assuming it was recorded at YE, entries
are
Equity investments xx
Unrealized gains on EI-FV PL or OCI xx
<Orig. stock rights x (FMV-Carrying value)>
Stock Rights
xx
Invst income
<TMV x orig. stock rights>

xx