Summary of Investments in Debt Securities

1. Classification of Financial Assets (Page 8)

● Financial assets are classified into three categories:
○ Amortized Cost: For assets held to collect contractual cash flows.
○ Fair Value Through Other Comprehensive Income (FVTOCI): For assets held for both
collecting cash flows and selling.
○ Fair Value Through Profit or Loss (FVTPL): For assets held for trading or not meeting
the criteria for the other two categories.
● The classification is based on the entity's business model and the contractual cash flow
characteristics of the financial asset.
2. Reclassification of Debt Securities (Page 81)
● Debt securities can be reclassified between categories, with specific adjustments required:
○ Amortized Cost to FVTPL: Measure at fair value; the difference goes to profit or loss.
○ Amortized Cost to FVTOCI: Measure at fair value; the difference goes to other
comprehensive income.
○ FVTPL to FVTOCI: Fair value becomes the new carrying amount; effective interest
rate adjusted.
○ FVTPL to Amortized Cost: Fair value becomes the new carrying amount; effective
interest rate adjusted.

3. Expected Credit Losses (ECL) (Pages 78-79)

● The ECL model applies to financial assets measured at amortized cost or FVTOCI, excluding
equity securities.
● It follows a three-stage model:
○ Stage 1: Performing assets with low credit risk; ECL measured over 12 months.
○ Stage 2: Underperforming assets with significant credit quality deterioration; ECL
measured over the lifetime.
○ Stage 3: Credit-impaired assets; ECL measured over the lifetime.
● Interest income is calculated differently based on the stage of the asset, affecting how it is
recognized in financial statements.
4. Accounting for Investment in Bonds (Page 64)
● Bonds can be classified as FVTOCI, and their valuation is affected by market price changes
over time.
● An example illustrates the bond price changes over several years, highlighting the
importance of fair value measurement.
5. General Principles and Considerations
● The document emphasizes the importance of understanding the classification and
measurement of financial assets, particularly in the context of debt securities.
● It outlines the need for entities to assess credit risk and recognize expected credit losses in a
timely manner to ensure accurate financial reporting.
Summary of "Module 07: Investments in Equity Securities" (Pages 1-96)
Learning Outcomes (Page 2)
The module aims to equip learners with the ability to:
● Explain classifications of investments in equity securities.
● Enumerate transactions post-initial recognition.
● Perform accounting for subsequent transactions.
● Define significant influence and how it is acquired.
● Explain the equity method of accounting.
● Perform accounting for investments in associates.
Classification of Investments (Pages 3-10)
Investments in equity securities are classified into:
● Held for Trading: Meant for short-term profit.
● Available for Sale: Not classified as held for trading or held to maturity.
● Held to Maturity: Debt securities that the entity intends to hold until maturity.
● Equity Method: Used when the investor has significant influence over the investee, typically
indicated by ownership of 20% to 50% of voting shares.
Accounting for Investments (Pages 11-30)
● Initial Recognition: Investments are recorded at cost, including transaction costs.
● Subsequent Measurement: Depending on the classification, investments may be measured
at fair value or amortized cost.
● Dividends: Recognized as income when declared.
Significant Influence (Pages 31-40)
● Significant influence is the power to participate in financial and operating policy decisions of
the investee.
● Indicators include representation on the board, participation in policy-making processes, and
material transactions between the investor and investee.
Equity Method of Accounting (Pages 41-60)
● Under the equity method, the investment is initially recognized at cost and subsequently
adjusted for the investor's share of the investee's profits or losses.
● Share of Profits/Losses: Recognized in the investor's income statement.
● Dividends Received: Reduce the carrying amount of the investment.
Accounting for Investment in Associates (Pages 61-84)
● Upstream Transfers of Fixed Assets: Unrealized profits from upstream transfers are
excluded from net income and amortized over the asset's useful life.
● Investee with Heavy Losses: If an investee incurs losses, the investor may need to recognize
losses up to the carrying amount of the investment.
● Intercompany Transactions: Adjustments are necessary for transactions between the
investor and investee to avoid profit overstatement.
Impairment of Investments (Pages 85-96)
● Objective Evidence of Impairment: Includes significant financial difficulties, breaches of
contract, or adverse changes in the environment.
● Assessment: The recoverable amount is compared to the carrying amount; if lower, an
impairment loss is recognized.
● Recognition and Disclosure: Impairment losses are recognized in profit or loss, and entities
must disclose the nature and amount of impairment losses.