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Classification and Measurement of Financial Assets

PFRS 9 (effective 01.01.13)

Financial Asset

PAS 32 para 11

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Common Examples of FA

Global Losses from FA: The US Financial Crisis of 2007

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FA Classification and Basis

Classification
Amortized cost Fair value

Basis for Classification

(1) The entitys business model for managing the

financial assets; and (2) The contractual cash flow characteristics of the financial asset

Amortized Cost: Definition

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Price of a Bond
Q: What is the price of a 3-year, 10% bond with face value of P5M when the prevailing market interest p g rate is 12%? A: (500,000 x 0.893)+(500,000 x 0.797) + (5,500,000 x 0.712) = P4,759,817 Note: The bond sold at a discount (i.e., less than par value) because its coupon rate is less than the market interest rate.

The Amortized Cost of a Bond Investment

Date 1/1/2008 interest received interest revenue Amortized amortization cost 4,759,816.87

12/31/2008 500,000.00 571,178.02 71,178.02 4,830,994.90 12/31/2009 500,000.00 579,719.39 79,719.39 4,910,714.29 12/31/2010 500,000.00 589,285.71 89,285.71 5,000,000.00

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Classification: Specific Requirements

Initial and Subsequent Measurement

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Gains and Losses

Impairment

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Impairment Reversal

Reclassification