DEBT INVESTMENTS Cash XX

Debt Investment at AC (balancing figure) XX

- Represents a creditor relationship with the enterprise Interest Receivable XX
- Investment in financial instruments issued by an entity Interest Revenue XX
*issue price upon purchase x effective rate x no. of
that typically have:
accrued months/ 12 months
a. a maturity value;
*no of accrued months - from purchase date to end of
b. Interest date
year
c. Maturity date
Classification basis:
PURCHASE WITH TRANSACTION COST
● Business model for managing the financial asset
If it has transaction cost upon purchase, add it to the
● Contractual cash flow characteristics of the
computed bond price (purchase price).
financial asset.
This will be the basis for the beginning carrying value (at
date of purchase).
CLASSIFICATIONS
● Debt Investment at Amortized cost
INSTALLMENT BASIS
For collection based on contractual cash flow consisting
Use mix streams
solely payment for principal and interest. (SPPI)
Recognition of interest revenue, amor. of disc/prem and
- will wait until maturity date.
collection of principal (yearly).
● Debt Investment at Fair Value- Profit & Loss
Cash XX
For trading - wll not wait until maturity date. We sell to
Debt Investment at AC XX
gain profit (buy & sell).
*collection of yearly principal (not full- face value/no. Of
● Debt Investment at Fair Value- OCI
years or periods
With combined characteristics of Debt investment at
Illustration:
amortized cost & FV-Profit & Loss.

TYPES OF BONDS
● Term bond- matures in single date (lump sum)
● Serial Bond- matures in multiple date
(installment)

Quotation of debt security expressed as percentage of

FV
At par- synonymous with face value (1oo%)

ACCRUED INTEREST ON DEBT SECURITIES AT TIME

OF PURCHASE OR PURCHASE BETWEEN PAYMENT
DISPOSAL (sell)
DATES.
Upon sale of bonds:
*semi-annual interest payments (Jan 1 & July 1)
Cash (quoted price) XX
Purchase on March 1 (accrued interest Jan. 1-March 1 or
Debt Investment at AC* XX
2 months)
Gain on disposal XX
*(carrying amount at date of sale)
ACCRUED INTEREST- excluded in the cost of debt
investments & recorded separately in an interest
Total income at date of sale= interest revenue + gain
receivable/revenue account (wag isasama sa bond price)
GAIN = Cash (quoted price)-carrying value at date of sale
It is part of cash paid at initial recognition.
Selling price > Carrying value (updated) GAIN
AT AMORTIZED COST Selling price < Carrying value (updated) LOSS

At initial entry (upon purchase):

Debt Investment at AC XX
Interest receivable (accrued) XX
Cash XX
Principal amount x stated rate x no. of accru. mon./12

Upon collection of interest at end of year:

AT FV THROUGH PROFIT & LOSS
For trading purposes *If there is a different quoted price at next year
Any accrued interest must be recorded as interest Fair Value (principal x quoted price) XX
revenue Amortized cost (XX)
Cumulative Unrealized Loss XX
Effect of transaction to profit Bal. before adjustment (prev. loss) (XX)
*Transaction cost or commission fee - interest revenue + Unrealized Gain XX
Unrealized G/L-FVPL
GAIN on Disposal = Market Value - Sales Price

SUMMARY Accrued interest sold in between of maturity date

● Quotation price > Amortized Cost GAIN
Fair Value Adjustment (debit)
● Quotation price < Amortized Cost LOSS
Fair Value Adjustment (credit)

If there is recognized gain from previous year

Fair Value (principal x quoted price) XX
AT FV THROUGH OCI Amortized cost (XX)
Cumulative Unrealized Loss XX
Change in balance of Unrealized Gains/Loss shall be Bal. before adjustment (prev. gain) (XX)
presented at SCI Unrealized LOSS XX
Gain or Loss = Sales Price - Carrying Value
CASH PROCEEDS of bonds sold = Sales price +
Accounts reported at SFP accrued interest
Debt Investment at FVOCI XX *entry upon sale
Fair Value Adjustment (same with cumulative) XX
Carrying Value XX

Cumulative Unrealized Gain/Loss on Debt XX

Investment at FVOCI (OCI)

Accounts reported at SCI

Interest Income XX
Unrealized Gain/Loss on Debt Investment XX
at FVOCI (OCI)
- Gain on disposal = Sales price - Carrying Value at date From FVPL, the new debt investment (FVOCI) is
of sale recorded at FV & an effective interest rate is calculated
based on FV on date of reclassification.

RECLASSIFICATION TO FVOCI
Entry: Debt Investment at FVOCI XX
Debt Investment at AC XX
Unrealized G/L-FVOCI XX

● Amor Cost > FVOCI LOSS

● Amor Cost < FVOCI GAIN
NET SELLING PRICE = Quoted price - transaction
cost
FVOCI to FVPL
Alternative…
Entry: Debt Investment at FVOCI XX
Quoted price xx
Debt Investment at FVPL XX
transaction cost (xx)
Net Selling Price xx
RECLASSIFICATION TO AMOR. COST
Amortization Cost prev year (xx)
*interpolation
Realized Loss P/L XX
Entry: Debt Investment at AC XX
Debt Investment at FVPL XX

RECLASSIFICATION
*with fv adjustment (CR)
Entry: Debt Investment at AC XX
It shall be made when & only when an entity changes its
Fair Value Adjustment
business model for managing its financial assets.
Debt Investment at AC XX
Reclassification is PROHIBITED:
Unrealized G/L-FVOCI XX
1. When there is change in management intention
2. Temporary disappearance of a particular market;
3. Transfer of assets between existing models.

Reclassification shall be made prospectively from the

date of acquisition.

RECLASSIFICATION FROM AMOR. COST TO FVPL

Difference between FV and Amor. cost is taken to P&L.
● FV > Amor. Cost GAIN
● FV < Amor. Cost LOSS

FROM FVOCI TO FVPL, the new debt investment (FVPL)

is recorded at FV & cumulative unrealized gain/loss in
OCI is transferred to profit or loss.
● FVOCI > FVPL LOSS
● FVOCI < FVPL GAIN
Entry: Debt Investment in FVPL XX
Unrealized G/L-FVOCI XX
Debt Investment at FVOCI XX
FV adjustments XX
G/L on reclassification XX

RECLASSIFICATION TO FVOCI
From Amor. Cost, the new debt investment (FVOCI) is
recorded at FV & the difference between FV & amortized
cost is taken to OCI. Effective interest rate used as debt
investments at amortized cost remains the same.