Review of Chart of Accounts – Philippines
Questions and Suggested Answers
1. In China GAAP, the bonds or stocks purchased are categorized as "Held-for-trading" or "Available for sale" or "Long term investment", based on the purpose of purchase. Does Philippine GAAP have similar categorization? Philippine client want to separate the marketable securities to current or non-current, it means short or long term, right? Answer: The Philippine Financial Reporting Standards (PFRS) [based from International Financial Reporting Standards (IFRS)] classifies “Investment in Bonds” and “Investments in Stocks” as financial assets. For this purpose, investments in bonds or stocks are classified as: Trading securities (debt or equity securities) o o “Financial assets at fair value through profit or loss” by requirement “Financial assets at fair value through profit or loss” by designation
Available-for-sale securities (debt or equity securities) Held-to-maturity securities (debt securities only)
These investments are classified as either current (short-tem) or noncurrent (long-term) assets. The account name “Long-term investment” is not among the financial assets classification in PFRS. Current investments are investments that are by their very nature are readily realizable and are intended to be held for not more than one year.
Debt Trading securities Available-forsale √ √
Equity √ √
Current or Noncurrent
√ - Maybe classified as current or noncurrent depending on whether they are intended to be held within one year or for more than one year √
For instance, trading securities are normally classified as current assets because these investments are expected to be realized within twelve (12) of the balance sheet date. Noncurrent financial assets are investments other than current investments. This residual definition means that the noncurrent investments are intended to be held for more than one year or are not expected to be realized within twelve months after the end of the reporting period.
Trading Securities or Held-for-trading Securities The first category of financial assets under PAS 39 is called “financial assets at fair value through profit or loss”. This category includes two types of financial assets, they are: A. Financial assets that are held for trading or popularly known as “trading securities.” This category of financial assets at fair value through profit or loss “by requirement,” meaning required by the standard. For example, PAS 39, paragraph 9, provides that a financial asset is classified as held for trading it is a derivative. B. Other financial assets that are designated on initial recognition as at fair value through profit or loss. For example, investments in bonds and other debt instruments or investments in quoted equity shares can be designated as at fair value through profit or loss. This category of financial assets as at fair value through profit or loss “by designation.” Philippine practice normally refers to “marketable securities” as “trading securities.”
Available-for-sale Securities Generally, available-for-sale securities are debt or equity securities are debt and equity securities that are purchased and held indefinitely and will be available to be sold when the need for liquid funds arises during the operating cycle. Available-for-sale securities may be classified as current or noncurrent depending on whether they are intended to be held within one year or for more than one year. In the absence of any statement to the contrary, available-for-sale securities are classified as noncurrent assets. Held-to-maturity Securities Held-to-maturity securities are debt investments with fixed or determinable payments and fixed maturity that an entity has the positive intent and ability to hold to maturity. Any sales of these securities prior to their maturity should be rare. Held-to-maturity securities are classified as...