Wild／Principles of Financial Accounting IFRS (Chapter 1-17)(Custom Edition)／3e／2023

2023 NEW

Principles of Financial Accounting IFRS (Chapter 1-17)(Custom Edition) 3/e 新版特色 • 台灣客訂量身打造：依據台灣的教學生態、客製內容調整 書籍，版本更新除各章勘誤之外，特別針對Ch.15, Ch16 新增、更新圖表及照片，以更符合台灣現況。 • 內文編寫簡潔易懂：以簡潔的文字敘述、清晰的版面編排、 視覺化的圖表設計，讓學生更有效率的閱讀、更有效能的 吸收。 • 系統化會計計算步驟：循序漸進，精簡優化複雜的會計流 程，幫助學生融會貫通重要觀念和作業程序，引導學生靈 活思考、應用所學、強化教育訓練和職涯發展。

目錄 Ch 1 Accounting in Business Ch 2 Analyzing and Recording Transactions Ch 3 Adjusting Accounts for Financial Statements Ch 4 Completing the Accounting Cycle Ch 5 Accounting for Merchandising Operations Ch 6 Inventories and Cost of Sales Ch 7 Accounting Information Systems Ch 8 Cash, Fraud, and Internal Control

Ch 9 Accounting for Receivables Ch10 Long-Term Assets Ch11 Current Liabilities and Payroll Accounting Ch12 Accounting for Partnerships Ch13 Accounting for Corporations Ch14 Long-Term Liabilities Ch15 Investments Ch16 Reporting the Statement of Cash Flows Ch17 Analysis of Financial Statements

年份：2023 定價：1480元 適用課程：初級會計學、會計學 規格：641頁 / 彩色 / 平裝 ISBN-13：9786269646876 教學配件：PowerPoint / 教師手冊 / 題庫 / 習題解答

新版特色  1. Ch.15 新增流程圖

流程圖表闡述不同的 Business Model、 持有比例表決權之下 ，Debt Investments, Equity Investments

各自該如何判斷其認 列的原則，清晰加強 學生的對會計認列的 認知。

 2. Ch.16 新增圖表 圖表化會計科目，引導學生快速理解現金的流入、流出使用不同的方法認 列時，在「現金流量表」上應如何呈現及差異。

←間接法認列原則 ↓直接法認列原則

KEY FEATURES Visual Learning 研究分析顯示現代學生比較沒耐心長時間閱讀純文字，作者特別檢視 新版所有文字內容，用更簡明扼要的語句敘述，用更一目瞭然的視覺 圖像表達，減少文字贅述，去蕪存菁，精簡後更見精華。

Need-to-Know Demos 新版各個章節的關鍵之處設計Need-to-Know Demos單元，以問題 的方式呈現，伴隨解答和步驟，幫助學生了解一定要懂的重要觀念。

KEY FEATURES Keep It Real 收錄知名企業的新年度數據資料，大量運用在作業習題和案例分析 ex：Apple、 PUMA、Adidas、Nestle，貼近市場的數據引發學生 學習興趣，提升學習效果，也讓學生有更深的領會。

New Cheat Sheets 作者在新版每個章節最後增加Summary：Cheat Sheet 摘要設計，

以一頁的長度，將每個章節的重要觀念、會計流程和公式，以視覺 化的圖像統整方式呈現給學生。

KEY FEATURES New Videos 豐富多元結合實務的教學影片，

將重點文字轉化成視聽影音， 密切結合各個學習目標，有效 提升學生的學習興趣和效果。

New Assignments 多樣化的題型協助老師有效評 量學生學習成效，透過習題練 習幫助學生複習學習重點。

線上學習平台Connect 完整、豐富、多元的教學資源都可以在 Connect 教學學習平台上取 得，滿足老師/學生在課前/課中/課後多項的教學/學習需求。

FOURTH PASS

15

Investments

Chapter Preview BASICS OF INVESTMENTS

DEBT INVESTMENTS

EQUITY INVESTMENTS

C1 Short-term vs. long-

Recording debt investments

Recording equity investments

Debt vs. equity

P1 Amortized cost (AC) P2 Fair value through

term

C2 Classification and measurement

C3 Impairment

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P3 Fair value through

profit or loss (FVTPL)

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NTK 15-1, 15-2, 15-3

REPORTING AND ANALYSIS Summary of debt and equity investments

P4 No control or

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other comprehensive income (FVOCI)

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Comprehensive income

significant influence

P5 Significant influence C5 Control

A1 Yield to maturity (YTM)

NTK 15-4, 15-5

Learning Objectives CONCEPTUAL

C1

ANALYTICAL

Distinguish between short-term and long-term investments and between debt and equity investments.

C2

Describe different measurement classifications for investments in financial assets.

C3

Describe the general concept of impairment and expected credit loss model.

C4

Describe the concept of effective interest rate (EIR).

C5

Describe the accounting requirements for equity investments with control.

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A1

Use yield to maturity to evaluate the returns of debt investments

PROCEDURAL

P1

Account for debt investments at AC.

P2

Account for debt investments at FVOCI.

P3

Account for debt securities at FVTPL.

P4

Account for equity investments with no control or significant influence.

P5

Account for equity securities with significant influence.

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FOURTH PASS

Investing in debt and equity securities “Same debt or equity securities, different accounting treatments under different classifications”— Darren Tan Companies that are reporting their financials under the IFRS framework began to adopt IFRS 9 Financial Instruments globally, in place of IAS 39 Financial Instruments: Recognition and Measurement, on January 1, 2018. Under IFRS 9, all companies that hold debt and equity investments (as part of the wider scope of financial instruments) have to classify them into three broad measurement categories: amortized cost (AC), fair value through other comprehensive income (FVOCI), and fair value through profit or loss (FVTPL). IFRS 9 has a greater impact on the financial reporting of banks and investment funds, compared to non-financial institutions, as they have a higher proportion of financial instruments on their balance sheets.

Since January 1, 2018, OCBC Bank (www.ocbc.com), Southeast Asia’s second largest bank by total assets, has classified and measured its financial assets held according to IFRS 9.1 “In accordance with IFRS 9, we classify loans to our customers, the largest asset on our balance sheet, mainly under amortized cost. For debt and equity securities, we show the total holdings collectively as one item on the balance sheet and disclose the accounting classifications of AC, FVOCI and FVTPL in the accompanying notes to financial statements,” explains

BASICS OF INVESTMENTS

有

所

©Dave and Les Jacobs/Blend Images LLC ©OCBC Bank

Darren Tan, Chief Financial Officer of OCBC Group, “to provide information that is useful in making economic decisions”.

At the end of 2019, OCBC had loans to customer of S$265,000 million classified under AC. It had debt and equity securities of S$29,000 million, of which it classified S$65 million under AC, S$22,000 million under FVOCI and S$7,000 million under FVTPL. In comparison, non-financial institutions such as adidas and Nestlé had total financial assets of S$9,800 million (EUR6,500 million) and S$34,600 million (CHF25,000 million), respectively, at the end of 2019.

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Source: OCBC. https://www.ocbc.com/assets/pdf/annual%20reports/2019/ocbc_ ar2019_english.pdf

In prior chapters, we covered the reporting of both equity (ordinary and preference shares) and debt (bonds and notes) from the standpoint of the issuer (also known as investee or seller).

This chapter covers the reporting of investing in financial assets comprising equity and debt securities from the standpoint of the holder (also known as investor or buyer).

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Purposes and Types of Investments

C1

Distinguish between debt and equity securities and between short-term and long-term investments.

Investments exclude cash and cash equivalents held for meeting short-term needs, receivables from EXHIBIT 15.1 customers and loans provided to borrowers.2 Companies make investments for at least three rea- Investments of Selected Companies sons: (1) to invest the extra cash (or cash equivalents) to yield more income, (2) to invest for strategic reasons in companies such as suppliers, customers, business partners and even competitors, and (3) for some Coca-Cola ST 5% LT 23% entities, such as investment funds (also known as mutual funds) and penStarbucks ST 1% LT 2% sion funds, to make collective investments on behalf of investors.

Investments can be in either financial assets such as debt and equity LT 13% Pfizer ST 7% securities or non-financial assets such as land and buildings not used LT 1% Microsoft ST 41% in the company’s own operations. On the balance sheets of most companies, investments in financial assets are shown as “financial assets” Percent of total assets without the word “investments”.

This chapter covers investments in financial assets and excludes investments in land Investee’s Investor’s Balance Sheet Balance Sheet and buildings (known as investment property). Exhibit 15.1 shows short-term (ST) and Liabilities Assets long-term (LT) investments as a percentage of total assets for selected companies.

Short-Term Versus Long-Term Investments

Short-term investments comprise securities that are (1) held primarily for the purpose of trading or (2) expected To be precise, OCBC adopts Singapore Financial Reporting Standard (International) 9 (SFRS(I) 9), which is identical to IFRS 9.

2 Banks sometimes structure loans as bonds and they record these as loans to customers but not as investments, based on the economic substance rather than the legal form.

Notes Payable Bonds Payable Equity Ordinary Shares Preference Shares

Debt Investments Equity Investments

1

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FOURTH PASS

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Chapter 15

Investments

to be realized within 12 months from the reporting date. They are presented as current assets. All other investments are regarded as long-term investments and are presented as non-current assets.

Debt Securities versus Equity Securities Investments in securities include both debt and equity securities. Debt securities, such as bonds and notes, reflect a lending arrangement. These are fixed-income securities issued by governments, government agencies and companies. Equity securities, such as investments in shares or units issued by companies, business trusts, real estate investment trusts or unit trusts (also known as mutual funds), reflect an ownership arrangement.

C2

Classification and Measurement

Describe different measurement classifications for investments in financial assets

EXHIBIT 15.2 Alternative Classifications of debt investment and equity investment

The objective of financial statements is to provide information that is relevant and useful in making economic decisions. To meet this objective, accounting for investments in financial assets considers four factors: (1) type of securities, either debt or equity; (2) for debt securities, the contractual cash flow characteristics of the securities and the investor’s “business model” (explained below) for managing them; (3) for equity securities, the percentage of voting power in the investee company held by the investor; and (4) for debt securities, the maturity date and for equity securities, the company’s expectation of holding over short term or long term.

Debt investments Regardless of whether they are quoted or unquoted, or whether they are held for short term or long term, debt investments are classified under one of the three measurement categories in IFRS 9.

Investments The classification depends mainly on the contractual cash flow characteristics of the securities and the investor’s “business model” for managingInvestments them. Contractual cash flow characteristics refer to whether the cash flows of the securities reflect a basic lending arrangement or are Equity modified by derivativesDebt embedded in the debt securities (called the host). The term “business model” refers to how an investment is managed on its own or within a portfolio; it does not refer to the company’s overall business model. A company can have different “business models” for different investments portfolios.

Business Modelor for different investment Significant No control or Control Neither held to9,collect significant Under IFRS all debt securities are recorded (measured) atInfluence the date of purchase at fair value Equity Debt Business Influence (plus transaction costs where applicable) and subsequently classified under either amortized Model cost (AC), fair value through other comprehensive income3 (FVOCI) or fair value through No Business Model profit or loss4 (FVTPL).

Business Model held to collect The AC classification is for debt securities (like bonds and notes) whose contractual cash held for trading interest and sell purpose flows are solely payments of principal and interest on the principal outstanding (SPPI) and Held for within Irrevocable cash st which are managed aAvailable“business model” to collect the contractual flows only. For Held-totrading for-sale Controlop n (AC) these debt investments, amortized cost provides the most relevant and useful information for maturity Yes (FVTPL*) (AFS) reporting the financial position and the performance.

Fair value through The FVOCIother classification is for debt securities comprehensive Fair valuewhose throughcontractual cash flows are SPPI and Fair valuecash through other income--with profit or loss the contractual which are managed within recycling a “business model” to collect flows and to sell comprehensive FVOCI (FVTPL) income--no recycling before maturity from time to time. For these debt investments, a combination of fair value for reporting the financial position and amortized cost method for reporting FVOCI the performance provides the most relevant and useful information.

The FVTPL classification is for debt securities that are managed within a “business model” to sell in the near term (that is, for the purpose of trading) and for any securities not eligible for AC or FVOCI Exhibit 15.2 shows the classifications of debt investments and equity investments. classification – a residual classification. When one or more derivatives are embedded in the host debt International Financial Reporting Standard 9 (IFRS 9) Financial Instruments require the securities such that the combined cash flows are not SPPI, the debt securities with the embedded classifications of debt investments and equity investments be based on company’s business derivative will not be eligible for AC and FVOCI classifications. For these debt investments, fair value model. When business model for holding debt investments is to collect interests and principle, is the most relevant and useful information for reporting the financial position and the performance. the debt investments are classified as amortized cost (AC). IFRS 9 further requires the Companies may also designate any debt investment for measurement at FVTPL, if this helps classification of debt investments into fair value through other comprehensive income (FVOCI) to reduce a significant “accounting mismatch” that may arise from different bases of reporting when business model is to hold to collect interest and to sell. When business model is neither, gains and losses from financial assets and financial liabilities. This designation can only be done the debt investments are classified as fair value through profit or loss (FVTPL). at the date of purchase and once done is not revocable.

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The classifications of equity investments are based on the investor’s extent of voting power in the investee. In addition, the substance of the arrangements in each case must be considered In IFRS 9, fair value through other comprehensive income means adjusting a financial asset’s carrying amount to fair as well.

When the holding lessgain than thecomprehensive voting power, it is presumed value and recording the investor corresponding fair value or 20% loss inofother income.

This balance that in thethere stateis noofcontrol or significant influence overon the andasthe equityline investments are classified ment comprehensive income forms part of equity theinvestee balance sheet a separate item called fair value reserve.

3

In IFRS 9, fair value through profit or loss means adjusting a financial asset’s carrying amount to fair value and recording the corresponding fair value gain or loss in profit or loss.

4

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Debt Securities versus Equity Securities Investments in securities include FOURTH both PASS debt and equity securities. Debt securities, such as bonds and notes, reflect a lending arrangement. These are fixed-income securities issued by governments, government agencies and companies. Equity securities, such as investments in shares or units issued by companies, busiChapter 15 Investments ness trusts, real estate investment trusts or unit trusts (also known as mutual funds), reflect an ownership arrangement.

518

Chapter 15

C2

Describe different measurement classifications or investments in financial assets

C2

Describe different measurement classifications or investments in financial assets

Investments

519

to be realized within 12 months from the reporting date. They are presented as current assets. All Classification and Measurement other investments are regarded as long-term investments and are presented as non-current assets.

The objective of company financial isatocompany provide information isofrelevant andor useful in For AC and FVOCI debt statements investments, reports interest income in profit loss not as FVTPL. If the made an irrevocable election on the that date purchase, the equity Debt versus Equity Securities Investments in securities both making economic To meet this accounting for investments inover financial based onSecurities the can amount of interestas received, butobjective, the of interest earned (accrued) time investments bedecisions. classified FVOCI (only if amount it is not held for trading).

When include the investor debt equitypower securities. suchitas bonds and that notes, reflect a lending arrangeassets considers four factors: (1) securities, type ofinvestee, securities, debt or equity; (2) for debt at theand effective interest (EIR).

For FVTPL debt investments, companies are notsecurities, required holding voting 20%rate toDebt 50% in the iseither presumed having significant influence ment.

These are fixed-income securities issued by governments, government agencies and therecord contractual flow characteristics of the and thethe investor’s “business model” to interestcash income and may instead record fair value gain/loss inclusive of interestmethod earned over the investee.

Such investment under IAS 28 issecurities required to use equity accounting companies.

Equity securities, such as investments in shares or units issued by companies, busi(explained below) for managing them;is(3) for equity securities, the percentage power over time.

However, there is no prohibition from doing so and practice many of companies prefor the investment.

When the investor having the majority of in the voting power invoting the investee, ness real estate investment trusts or have unit trusts (also known as mutual funds), reflect an in the investee company held by the investor; and (4)the for debt securities, the maturity date and fer to trusts, record interest income before making fair value adjustment as such the additional meaning more than 50%, it isseparately considered to control over the investee.

Under scenario, ownership arrangement. for consolidated equity securities, the company’s of holding interest income information is useful.expectation the financial statements method must be used.over short term or long term.

For all three classifications, companies must report subsequent realized gain/loss on sale in Debt or investments Regardless of whether they are quoted or unquoted, or whether they are Classification and Measurement profit loss. held for short term or long term, debt investments are classified under one of the three measureThe objective of financial statements to provide is relevant and for useful in Equity investments Regardless of is whether they information are quoted orthat unquoted, or held short ment categories in IFRS 9. making economic decisions.

To meet this objective, accounting for investments in financial term or classification long term, under IFRSmainly 9 the default for all equity investments than The depends on the classification contractual cash flow characteristics of(other the securiassets considersjoint four ventures factors: (1) type of securities, either Additionally, debt or equity; (2) for debt securities, in subsidiaries, and associates) is FVTPL. companies may elect to ties and the investor’s “business model” for managing them. Contractual cash flow characteristhe contractual cash flowinvestments, characteristics ofifthe securities and the investor’s “business model” classify particular equity only they are not held for trading, under FVOCI from tics refer to whether the cash flows of the securities reflect a basic lending arrangement or are (explained below) for them; (3)fair for equitygain securities, theOCI, percentage of profit votingorpower the date ofby purchase andmanaging report subsequent loss in instead loss. modified derivatives embedded in the debtvalue securitiesor(called the host).

Theofterm “business in the investee company held by the investor; and (4) for debt securities, the maturity date and Under this option, companies must also report subsequent realized gain/loss on sale in OCI. model” refers to how an investment is managed on its own or within a portfolio; it does not refer forInequity securities, company’s expectation of holding over short termreceivable or long term.

FVTPL orthe FVOCI classification, companies as income to theeither company’s overall business model. A company canreport have dividends different “business models” for in profit or loss unless such dividends are effectively partial recovery of the purchase different investments orRegardless for different portfolios.

Debt investments of investment whether they are quoted or unquoted, or whethercost. they are Under IFRSterm all are recorded the dateone of company purchase at itfair value held for short ordebt longsecurities term, debt investments are classified under of the three measureInvestments in9,Subsidiaries A company has(measured) control overatan investee if holds a (plus categories transaction where andinsubsequently classified under ment incosts IFRS 9.of theapplicable) majority (more than 50%) voting power the investee. In some cases, theeither singleamortized largest in(FVOCI) or faircan value cost (AC), faira substantial valuedepends through other comprehensive The classification mainly on cashof3flow characteristics ofhave thethrough securivestor holding percentage, butthe not contractual more thanincome 50%, the voting rights control 4 (FVTPL). profit loss ties and the investor’s “business model” for managing cash flow characterisover theor investee when all the remaining shares are held bythem. manyContractual minority investors.

Also, an invesThe classification is for debtofsecurities bonds notes) whose contractualorcash ticsholding referAC tonot whether the 50% cash flows the securities aby basic lending arrangement are tor more than of equity shares can(like havereflect controland way of special arrangements for flows are solely payments of principal and interest on the principal outstanding and modified bypower derivatives embedded the debt securities (called the host).

Theeconomy term(SPPI) “business super-voting or a special right toinappoint directors to the board.

Some digital giants, which managed a “business model” to its collect thewithin contractual cash flows only.

For model” refers toAlphabet, howwithin an investment is on own or a portfolio; itthis doesway notwhen refer such as are Alibaba, Facebook etc.managed have allowed the founders to retain control these investments, cost provides the after most relevant and useful information for to the company’s business model.

A company can the have different “business models” they nodebt longer holdoverall more amortized than 50% of the equity shares company’s initial public offering. reporting the financialorposition and the performance. different investments for different investment portfolios.

5 A company is presumed have influence over the Investments Associates The FVOCI is for debtrecorded securities whosetocontractual flows are and Under IFRSin9,classification all debt securities are (measured) at thesignificant datecash of purchase at SPPI fair value investee if it holds 20% to 50% of the voting power in the investee.

It is presumed to have no which are managed within a “business model” to collect the classified contractual casheither flows amortized and to sell (plus transaction costs where applicable) and subsequently under control or significant influence if it holds less than 20% of the voting power.

3 before maturity from through time to time. these debt investments, a combination fair value for or fairofvalue through cost (AC), fair value otherFor comprehensive income (FVOCI) Exhibit 15.34financial identifies six classes of securities using the first three factors above. reporting the position and amortized cost method for reporting the mentioned performance pro(FVTPL). profit or loss After classification, theisinvestment is presented a current a non-current asset basedcash on vides the most relevant and useful information.

Thethe AC classification for debt securities (likeasbonds and or notes) whose contractual the fourth factor.

Theare FVTPL for debt securities that are within outstanding a “business model” to and sell flows solelyclassification payments ofisprincipal and interest onmanaged the principal (SPPI) in the near (that is, for thea purpose of trading) for any securities not eligible AC or FVOCI which are term managed within “business model”and to collect the contractual cashfor flows only.

For EXHIBIT 15.3 Debt Investments Equity Investments classification – a residual classification.

When one orthe more derivatives embedded in the host FOURTH debt these debt investments, amortized cost provides most relevantare and useful information for Classifications PASSof control or debt securities with the embedded securities such that the combined cash are not No SPPI, the reporting the financial position and theflows performance.

Investments in Securities significant Significant derivative will notclassification be eligible forisAC FVOCI classifications.

For these debt fair value The FVOCI forand debt securities whose contractual cashinvestments, flows are SPPI and influence influence Control is the most relevant and usefula information for reporting the financial position cash and the performance. which are within “business model” to collect the contractual flows and to sell AC managed FVOCI FVTPL FVTPL by Companies also designate investment forormeasurement at FVTPL, if this helps before maturitymay from time to time.any Fordebt these debt investments, a combination of fair value for election, Equity to reduce the a significant that may arise from different bases of reporting reporting financial “accounting position and mismatch” amortized cost method for reporting the performance proFVOCI accounting Consolidation Chapter Investments 519 gains and lossesrelevant from financial assets and financial liabilities. This designation can15only be done vides the most and useful information.

Debt securities Debt securities Debt securities Equity securities Equity securities Equity securities at the of purchase and once not revocable.

Thedate FVTPL classification is fordone debt is securities that are managed within a “business model” to sell are SPPI and that are SPPI and held for trading or with less than 20% with 20% to 50% with more than inthat the near term (that is, for theinvestments, purpose of trading) and for any securities not eligible for ACor or FVOCI For AC and FVOCI debt a company reports income not eligible to be voting power ininterest voting power in in profit 50% voting loss powernot 3 held for collecting held for collecting In IFRS 9, fair value through other comprehensive income means adjusting a financial asset’s(accrued) carrying amount todebt fair classification – a residual classification.

When one or more derivatives are embedded in the host based on the amount of interest received, but the amount of interest earned over contractual cash contractual cash classified under AC the investee the investee in the investee time value and recording the corresponding fair value gain or loss in other comprehensive income.

This balance in the statesecurities such that the cashFor flows are not SPPI, the debt securities with flows and combined forrate sale (EIR). or FVOCI (residual atflows theonly effective interest FVTPL debt investments, companies arethe notembedded required ment of comprehensive income forms part of equity on the balance sheet as a separate line item called fair value reserve. from time to time classification) derivative will not be eligible for AC and FVOCI classifications.

For these debt investments, fair value to record interest income and may instead record fair value gain/loss inclusive of interest earned 4 In IFRS 9, fair value through profit or loss means adjusting a financial asset’s carrying amount to fair value and reis the most relevant and useful information for reporting the financial position and the performance. over time.

However, there is no prohibition from doing so and in practice many companies precording the corresponding fair value gain or loss in profit or loss.

Companies may also designate any debt investment for measurement at FVTPL, if this helps fer to record interest income separately before making the fair value adjustment as the additional Impairment to reduce a significant “accounting mismatch” that may arise from different bases of reporting interest income information is useful.

Investing in debt from securities comes withand a risk that the issuer may bedesignation unable to make payments of Describe the general gains financial assets financial liabilities.

This can only done Forand all losses three classifications, companies must report subsequent realized gain/loss onbesale in of impairment and interest or of principal when as the default risk or credit risk. Investing in concept at the date purchase and due. once This done is is known not revocable. expected credit loss model. profit or loss. equity securities comes with the downside risk that the issuer may experience a deterioration 05/17/21 07:21 PM investments Regardless of whether they are quoted or unquoted, or held forinvestshort in its financial or economic condition.

In both cases, the value of the debt or the equity 3Equity In IFRS 9, fair value through other comprehensive income means adjusting a financial asset’s carrying amount to fair term or long term, under IFRS 9 the default classification for all equity investments (other than ments may decline the investor maygain realize a loss from selling theincome. investments.

Thisin decline value and recording theand corresponding fair value or loss in other comprehensive This balance the statein subsidiaries, joint ventures and associates) is FVTPL. Additionally, companies may elect to ment of comprehensive income forms part of equity on the balance sheet as a separate line item called fair value reserve. in value is called impairment.

4classify particular equity investments, only if they are not held for trading, under FVOCI from In IFRS 9, fair value through profit or loss means adjusting a financial asset’s carrying amount to fair value and re5cording the corresponding fair value gain or loss in profit or loss.

IASdate 28 Investments in Associates andsubsequent Joint Ventures defines associate by reference the concept of significant the of purchase and report fair valueangain or loss in OCI, to instead of profit or loss. influence and option, a joint venture by reference the report conceptsubsequent of sharing of realized control. Accounting in joint Under this companies must to also gain/loss for on investments sale in OCI. ventures is an advanced topic beyond the scope of this book.

In either FVTPL or FVOCI classification, companies report dividends receivable as income in profit or loss unless such dividends are effectively partial recovery of the purchase cost.

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07:21 PM Investments in Subsidiaries A company has control over an investee company 05/17/21 if it holds a majority (more than 50%) of the voting power in the investee. In some cases, the single largest inwiL23262_ch15_516-555.indd 519 vestor holding a substantial percentage, but not more than 50%, of the voting rights can have control

05/17/21 07:21 PM

er 15

519

Investments

profit or loss not rued) over time are not required f interest earned companies preas the additional

520

n/loss on sale in

r held for short ents (other than ies may elect to er FVOCI from of profit or loss. sale in OCI. vable as income chase cost.

any if it holds a single largest incan have control . Also, an invesarrangements for economy giants, ol this way when public offering.

fluence over the med to have no

entioned above. t asset based on EXHIBIT 15.3 Classifications of Investments in Securities

FOURTH PASS Chapter 15 Investments

For AC and FVOCI debt investments, a company reports interest income in profit or loss not based on the amount of interest received, but the amount of interest earned (accrued) over time Chapter 15 or Foreffective AC and FVOCI company reports interest companies income in profit loss not at the interestdebt rateinvestments, (EIR). For aFVTPL debt investments, are notInvestments required Chapter 15 Investments based on the amount of interest received, the fair amount interest earned (accrued) over time to record interest income and may instead but record valueofgain/loss inclusive of interest earned at the effective interest rate (EIR).

For aFVTPL debt investments, companies are not required over time.

However, there is no prohibition from doing so and in practice many companies preFor AC and FVOCI debt investments, company reports interest income in profit or loss not Chapter 15 Investments to interest income andinvestments, may instead record fair value gain/loss inclusive earned ferrecord to record interest income separately before making the of fair value adjustment asinterest the or additional For ACthe and FVOCI abut company reports interest income inof profit loss not based on amount ofdebt interest received, the amount interest earned (accrued) over time over However, there is is no prohibition soofand in practice many companies preinterest information useful. based onincome the amount of interest received, butfrom the doing amount interest earned (accrued) time at thetime. effective interest rate (EIR).

For FVTPL debt investments, companies are notover required ferrecord to record interest before making the fair adjustment additional The value mayinterest alsoincome fallrate dueseparately to companies changes inFVTPL macro-economic or value marketrealized factors such asthe interest rates For all three classifications, must report subsequent gain/loss onrequired sale in at the effective (EIR).

For debtvalue investments, companies are not to interest income and may instead record fair gain/loss inclusive ofas interest earned interest information useful. or record market liquidity.

These cause declinesrecord in fairfair value which may notinclusive be impairment. profit orincome loss. to interest income and may instead value gain/loss interest earned over time.

However, theremay is is no prohibition from doing so and in practice manyofcompanies preFor all classifications, companies must subsequent realized gain/loss onimpairsale in ACthree and FVOCI debt securities, IFRS 9 report requires an to recognize over However, there is separately no prohibition from doing soquoted andinvestor in or practice many prefer totime. record interest income making the fair value adjustment ascompanies thethe additional Equity investments Regardless of before whether they are unquoted, or held short profit orincome loss.interest ment in profit orinformation lossincome during the investment holding period when itadjustment expects the loss tofor arise in fer to record separately before making the fair value as the additional interest is useful. term ornot longwhen term,the under IFRS 9to thepay defaultinterest classification for allwhen equitydue investments (other than future, issuer fails orare principal orgain/loss when the investor interest income information is and useful.

For all three classifications, companies must report subsequent on sale in Equity investments Regardless of any whether they quoted or realized unquoted, or held for short in subsidiaries, joint ventures associates) is FVTPL. Additionally, companies may elect to sells the investment at a loss.

This requirement does not apply to FVTPL debt and equity secuFor all three classifications, companies must report subsequent realized gain/loss on sale in profit or loss. term or long term, equity under IFRS 9 the default classification for allfor equity investments (other from than classify particular investments, only if they are not held trading, under FVOCI rities as recording a decline in fair value would automatically include the impairment in profit profit or loss. in subsidiaries, jointand ventures and associates) is FVTPL. Additionally, companies mayfor elect to the date investments of subsequent fair value gain lossas inorall OCI, instead profit orshort loss.

Equity Regardless of whether they are or quoted unquoted, orofheld or loss.

It purchase also does notreport apply to FVOCI equity investments related gains (other than classify particular equity investments, only if they are not held for trading, under FVOCI from Under this option, companies must also report subsequent realized gain/loss on sale in OCI. Equity investments Regardless whether they are quoted unquoted, or held for short term or long term, or under IFRS 9recorded the of default classification for all or equity investments (other than dividend losses aresubsequent infair other comprehensive income as a special treatment the date ofincome) purchase and report value gain or loss inequity OCI,companies instead of profit or loss.

In either FVTPL or FVOCI classification, companies report dividends receivable as income term or long term, under IFRS 9 the default classification for all investments (other in subsidiaries, joint ventures and associates) is FVTPL. Additionally, may elect to of IFRS 9. option, companies must also report subsequent realized gain/loss on sale in OCI.than Under this in profit or loss unless such dividends are effectively partial recovery of the purchase cost. subsidiaries, joint ventures and associates) is FVTPL. Additionally, companies may elect classify particular equity investments, only if they are not held for trading, under FVOCI from Impairment can arise due toclassification, many reasonscompanies and for debt investments, it is due mainly totoa In either FVTPL or FVOCI report dividends receivable as income classify particular equity investments, only if they are not held for trading, under FVOCI from the date of purchase and report subsequent fair value gain or loss in OCI, instead of profit or loss.

Investments Subsidiaries company has over an investee company if cost. it holds a deterioration ininunless credit quality.

ForAestimation of acontrol credit loss, IFRS 9ofprescribes an expected in profit oroption, loss dividends effectively partial recovery the purchase the datethis of purchase andsuch report subsequent gain orrealized loss in gain/loss OCI, instead of profit orunder loss.

Under companies must alsoare report subsequent on sale in largest OCI. majority (more thaneffective 50%) offrom the voting power invalue the In incurred some cases, the single incredit loss model January 1,fair 2018 to investee. replace the credit loss model Under this option, companies must also report subsequent realized gain/loss on sale in OCI. In either FVTPL or FVOCI classification, companies report dividends receivable as income Investments in Subsidiaries A company has control over an investee company if it holds vestor holding a substantial percentage, butthe notprobability more than 50%, of the voting rights cangiven have default controla IAS 39.

Expected credit loss model uses of default, estimated loss Inestimated either FVTPL orall FVOCI classification, companies report dividends as in profit or loss unless such effectively partial recovery ofinvestors. thereceivable purchase cost. majority (more than 50%) ofdividends the voting power in the investee.

Inminority some cases, the single largest inover the investee when the remaining shares are held by many Also, anincome invesand exposure at default toare estimate the credit loss before the actual loss occurs. in profit or loss unless such dividends are effectively partial recovery of the purchase cost. vestor holding a substantial percentage, but not more than 50%, of the voting rights can have control tor holding not more than 50% of equity shares can have control of advanced special arrangements for Impairment in in general and expected credit loss model in particular are topics beyond Investments Subsidiaries A company has control overby anway investee company if it holds a over the investee when the remaining shares in are held by investors.

Also, invessuper-voting or50%) aall special right appoint directors to many the board.

Some digital economy giants, the scope of power this book.

Investments in Subsidiaries Atocompany has control over an investee company iflargest itanholds majority (more than of the voting power the investee.

Inminority some cases, the single in-a tor notamore than 50% of voting equity shares can have control way of special for suchholding asholding Alibaba, Alphabet, Facebook etc. have the founders tovoting retain control this way when majority (more than 50%) of the power in the investee.

In some cases, the arrangements single largest investor substantial percentage, but not allowed more than 50%, ofbythe rights can have control super-voting power or a special right to appoint directors to the board.

Some digital economy giants, they the noholding longer more 50% of the equity after theofminority company’s initial offering. vestor ahold substantial percentage, but not more than 50%, the voting rights public can have over investee when all than the remaining shares areshares held by many investors.

Also, ancontrol invessuch as Alibaba, Alphabet, Facebook etc. have allowed the founders to retain control this way when over the investee when all the remaining are held by many minority investors.

Also, an investor holding not more than 50% of have control by way of special arrangements for 5 equity shares can Investments in Associates Aofcompany isshares presumed to have significant influence over the they no longer hold more than 50% the equity after the company’s initial public offering. tor holding not more than 50% of equity shares can have control by way of special arrangements super-voting power or a special right to appoint directors to the board.

Some digital economy giants, investee if it holds 20% to 50% of the voting power in the investee. It is presumed to have for no 5right to super-voting power or ainfluence special appoint directors toof the board.

Some digital economy giants, such as Alibaba, Facebook etc. have the founders to retain control this way when isthan presumed tothe have significant influence over the Investments inAlphabet, Associates control or significant if A it company holds lessallowed 20% voting power. such as Alibaba, Alphabet, Facebook etc. have allowed the founders to retain control thistoway when they no longer hold more than 50% the equity shares after the company’s public offering. investee if 15.3 it holds 20% to 50% ofofthe power in the investee.

Itfactors isinitial presumed have no Exhibit identifies six classes ofvoting securities using first three mentioned above. they no longer hold more than 50% of the equity shares after the company’s initial public offering.

5 control or significant influence if it holds less than 20% of the voting power.

After the classification, the investment is presented as a current a non-current asset based on A company is presumed to haveorsignificant influence over the Investments in Associates 5 15.3 classes ofvoting securities using thetoinvestee. first mentioned above. theExhibit fourthif factor. company ispower presumed havethree significant influence over the Investments inidentifies Associates investee it holds 20% tosix 50% ofAthe in the Itfactors is presumed to have no After the the investment is presented asina the current or a non-current assettobased on investee it holds 20% to 50% voting power investee.

It is presumed have no control orifclassification, significant influence ifofit the holds less than 20% of the voting power. the fourth factor.

Debt Investments Equity control or significant influence if it holds less thanusing 20% the of the power.

Exhibit 15.3 identifies six classes of securities firstvoting threeInvestments factors mentioned above.

Exhibit 15.3 identifies classes ofissecurities first or three factors mentioned above.

After the classification, thesixinvestment presentedusing as control a the current a non-current asset based on No or Equity Investments asset based on significant After the classification, the investment is presented as a current or aSignificant non-current the fourth factor. Debt Investments influence Control Noinfluence control or the fourth factor.

AC FVOCI FVTPL

Control

AC

Equity securities with more than 50% voting power in the investee

ake payments of sk. Investing in a deterioration e equity investnts. This decline

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FVTPL

究

significant Significant Equity Investments FVTPL or by influence influence Control election, Equity Equity Investments No control or FVOCI accounting Consolidation FVTPL or by significant Significant No control or election, Equity influence influence Control significant Significant Equity FVOCI securities Equity securities Equity securities accounting Consolidation influence Control withFVTPL less than 20% withinfluence 20% to 50% with more than or by voting power in votingEquity power in 50% voting power election, Equity securities Equity securities Equity securities FVTPL or by the investee theaccounting investee in Consolidation themore investee FVOCI with less than 20% with 20% to 50% with than election, Equity

Debt securities Debt securities Debt securities AC FVOCI FVTPL that are SPPI and that are SPPI and held for trading or AC FVOCI FVTPL held for collecting Debt held for collecting Debt not eligible to be Debt securities securities securities contractual classified under or AC that are SPPIcash and contractual that are SPPIcash and held for trading flowsfor only flowsfor and for sale or FVOCI (residual held collecting held collecting not eligible to be voting FVOCI power in voting power in 50% voting power accounting Consolidation Debt securities securities Debt securities Equity securities Equity securities Equity securities from time tocash time classification) contractual cash Debt contractual classified under AC the investee the investee in the investee that SPPI and that SPPI held for trading or with less than 20% with 20% to 50% with more than Debt securities Debt securities Debt securities Equity securities Equity securities Equity securities flowsare only flowsare and for and sale or FVOCI (residual held for collecting for collecting not eligible to be voting power in voting power in 50% voting power that are SPPI and held that are SPPI and held for trading or with less than 20% with 20% to 50% with more than from time to time classification) contractual cash contractual cash classified under the investee the investee in thevoting investee held for collecting held for collecting not eligible to beAC voting power in voting power in 50% power flows only cash flows and forcash sale or FVOCI (residual contractual contractual classified under ACthat the the investee theunable investee to make in thepayments investee Investing in debtfrom securities comes with a risk issuer may be of classification) flows only flowstime and to fortime sale or FVOCI (residual interest or principal when due.

This is known as the default risk or credit risk.

Investing in from time to time classification)

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Consolidation

有

所

Debt Investments DebtFVOCI Investments

519 519

必

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519

EXHIBIT 15.3 Classifications of EXHIBIT Investments15.3 in Securities Classifications of Investments15.3 in Securities EXHIBIT

EXHIBIT 15.3 Classifications of Investments in of Securities Classifications Investments in Securities

C3 Impairment C3 Investing in debt securities comes with a riskrisk thatthat the the issuer maymay be unable to make payments of equity securities comes with the downside issuer experience a deterioration Impairment interest or principal when due.

This isInknown as thethe default ordebt credit Investing in C3 in its financial or economic condition. both cases, value risk of the or risk. the equity investImpairment equity securities comes with the downside the issuer experience a deterioration ments may and the investor maya realize athat loss from selling investments.

This decline Investing indecline debt securities comes with riskrisk that the issuer maymay bethe unable to make payments of C3 in its financial or economic condition. In both cases, the value of the debt or the equity investImpairment

C3

Describe the general concept of impairment and expected credit loss model.

in value or isincalled impairment.

Investing debt securities withisa known risk thatasthe mayrisk be unable to make payments in of interest principal when comes due. This theissuer default or credit risk. Investing ments may decline and the investor may loss from selling the investments.

This decline interest or principal when due. is realize known the default risk or credit risk.

Investing in equity securities comes with theThis downside riskaas that the issuer may experience a deterioration 5in value is called impairment.

IAS Investments in Associates and Ventures defines associate reference to the of significant equity securities withcondition. theJoint downside risk thatanthe issuer may deterioration in its28 financial or comes economic In both cases, the valuebyof theexperience debt or concept theaequity investinfluence anddecline a joint by investor reference to theIn concept sharing control. investments in joint in its financial or venture economic condition. both cases, theofvalue of Accounting debt orforthe equity investments may and the may realize aofloss from selling the investments.

This decline 5ventures is an advanced topic beyond the scope of this book.

IAS 28 Investments in Associates and Joint Ventures defines an associate by reference to the concept of significant ments may decline and the investor may realize a loss from selling the investments. This decline in value is called impairment. influence and a joint venture by reference to the concept of sharing of control. Accounting for investments in joint in value is called impairment. ventures is an advanced topic beyond the scope of this book.

ncept of significant nvestments in joint

IAS 28 Investments in Associates and Joint Ventures defines an associate by reference to the concept of significant 5 influence and a joint in venture by reference to Ventures the concept of sharing of control.

Accounting investments in joint IAS 28 Investments Associates and Joint defines an associate by reference to theforconcept of significant ventures an advanced topic beyond the scope of concept this book. influenceisand a joint venture by reference to the of sharing of control. Accounting for investments in joint wiL23262_ch15_516-555.indd 519 ventures is an advanced topic beyond the scope of this book.

Describe the general concept of impairment and expected credit loss mode Describe the general

concept of impairment and expected credit loss mode Describe the general concept impairment Describeofthe general and expected loss model concept ofcredit impairment and expected credit loss mode

5

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wiL23262_ch15_516-555.indd

520

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wiL23262_ch15_516-555.indd

519

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wiL23262_ch15_516-555.indd

519

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wiL23262_ch15_516-555.indd

519

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FOURTH PASS

520

iL23262_ch15_516-555.indd

Chapter 15

Investments

The value may also fall due to changes in macro-economic or market factors such as interest rates or market liquidity. These may cause declines in fair value which may not be impairment.

For AC and FVOCI debt securities, IFRS 9 requires an investor to recognize the impairment in profit or loss during the investment holding period when it expects the loss to arise in future, not when the issuer fails to pay any interest or principal when due or when the investor sells the investment at a loss. This requirement does not apply to FVTPL debt and equity securities as recording a decline in fair value would automatically include the impairment in profit or loss. It also does not apply to FVOCI equity investments as all related gains (other than dividend income) or losses are recorded in other comprehensive income as a special treatment of IFRS 9.

Impairment can arise due to many reasons and for debt investments, it is due mainly to a deterioration in credit quality. For estimation of a credit loss, IFRS 9 prescribes an expected credit loss model effective from January 1, 2018 to replace the incurred credit loss model under IAS 39. Expected credit loss model uses the probability of default, estimated loss given default and estimated exposure at default to estimate the credit loss before the actual loss occurs.

Impairment in general and expected credit loss model in particular are advanced topics beyond the scope of this book.

作

權

著

520

所

有

必

害

侵

究

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FOURTH PASS

522

Chapter 15

Investments

annum. We can use the discounted cash flow (DCF) model to manually calculate the EIR. In practice, we usually use a financial calculator with the DCF function to calculate the EIR. Either way, the EIR for this bond works out to be 4.13% per annum.

作

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wiL23262_ch15_516-555.indd

522

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524

Assets = Liabilities + Equity +9,500 −9,500

Assets = Liabilities + Equity +300 −300

FOURTH PASS

Chapter 15

DEBT INVESTMENTS—AMORTIZED COST

究 P1

FOURTH PASS

必

Debt investments at amortized cost (AC) are presented as current assets if their maturity dates are within one year from the reporting date.7 Otherwise, they are presented as non-current assets.

The purchase cost (inclusive of commission) for debt investments can be either lower (at a discount) or higher (at a premium) than the amount repayable at maturity. The difference Chapter 15theInvestments between cost and the maturity value is amortized over the remaining life of the investment through the effective interest method.

有

523

Investments

害

侵

Account for debt investments at AC.

As shown in Exhibit 15.5, the purchase cost is $9,500 and the maturity value is $10,000. The amortized cost at of each ofdebt theinvestment, years increases over time fromcoupons the difference Strictly speaking, forthe anyend coupon-paying the present value of those due withinbetween one year should be presented even if the principal is due for repayment after oneatyear. accruing interestasatcurrent 4.13%assets of amortized cost and receiving the coupon 3%For of simplicity, $10,000.compaIf the nies tend to had disregard couponsthe due bond withinat one and present entire debt investment company purchased a year premium, the the amortized cost would under have non-current decreasedassets over when the principal is due after one year. time from amortization of the premium instead.

7

Recording Purchase

作

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所

Companies record all AC debt investments at cost (inclusive of commission) at the date of purchase.

Assume that DEF Ltd (the company) has paid-up capital of $9,500 and cash of $9,500. On January 1, 2021, the company purchases ABC Ltd’s bond with 5 years to maturity for cash of $9,500 and records523 the purchase as follows. wiL23262_ch15_516-555.indd

著

Jan. 1, 2021

Debt Investments – AC. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Record purchase of ABC Ltd bond at cost.

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9,500 9,500

DEBT INVESTMENTS—AMORTIZED COST

Recording Interest Income Companies accrue interest income on a time-proportion

Debt amortized cost (AC) are presented as current assets if their maturity dates basis investments when earned at (not when received).

Companies that are not banks usually record the accrual Otherwise, presented as non-current are within one from the reporting date.7usually of interest on ayear monthly basis while banks do sothey on aare daily basis. For simplicity, assets. in this The purchase cost (inclusive of commission) investments can be either lower (at a example, the company accrues interest income onfor andebt annual basis. discount) or higher a premium) the amount repayable at maturity. difference Under the effective(atinterest method,than interest income is the amount accrued atThe the EIR on the between cost and theand maturity is amortized over theeach remaining opening the amortized cost not thevalue coupon of $300 received year. life of the investment through the effective interest method.

For 2021, the company earns interest at the EIR of 4.13% on the original cost of $9,500. At December 31, 2021, the company accrues interest income of $392 as earned.

P1

Account for debt investments at AC.

7 Strictly speaking, for any coupon-paying debt investment, the present value of those coupons due within one year

Strictly speaking, for any coupon-paying debt investment, the present value of those coupons due within one year shouldDec. be 31, presented assets even–ifACthe For simplicity, compa2021 as current Debt Investments . . principal . . . . . . . . . .is. .due . . . .for . . . repayment . . . . . . . . . . after one year.392 nies tend to disregard couponsInterest due within Incomeone (P/L)year . . . . and . . . . .present . . . . . . . the . . . .entire . . . . . . debt . . . investment under non-current 392assets when the principal is due after one year.

Accrue interest at EIR of 4.13% of the original cost.

Recording Coupon Received When the company receives the coupon, it records cash received of $300 as partial recovery of the amortized cost instead of interest income.

Dec. 31, 2021 wiL23262_ch15_516-555.indd

523Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Debt Investments – AC . . . . . . . . . . . . . . . . . . . . . . . . . . .

300 300

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