INVESTMENT IN DEBT SECURITIES

• Debt securities

  Contracts of debt where the issuer owes the holder a debt and is obliged to repay the holder at a later date
• Types of debt securities

  • Term bonds - mature on a single date
  • Serial bonds - mature in a series of maturity dates
• Classification of debt securities


  • Amortized cost
  • Fair value through other comprehensive income (FVOCI)
  • Fair value through profit or loss (FVPL)
• Basis of classification

  • The entity's business model for managing the financial assets
  • The contractual cash flow characteristics of the financial asset
• Classification at amortized cost


  1. Business model: to hold financial assets in order to collect contractual cash flows (Hold-to-Collect business model)

  2. Contractual cash flows: solely payments of principal and interest (SPPI)
• Classification at fair value through other comprehensive income (FVOCI)


  1. Business model: to collect contractual cash flows and selling the asset (Hold-to-Collect and Sell business model)

  2. Contractual cash flows: solely payments of principal and interest (SPPI)
• Classification at fair value through profit or loss (FVPL)


  Financial asset that does not meet the conditions for measurement at amortized cost or FVOCI
• Illustration of accounting for debt securities

  • Assume a company purchased 3% $30,000,000 face value bonds on April 3, 2022 for a total payment of $30,200,000 including accrued interest. Interest on the bond is payable every December 31 of every year.
• Fair value through profit or loss (FVTPL)


  The financial asset is measured at fair value, and changes in fair value are recognised in profit or loss
• The difference between the new carrying amount and the fair value at reclassification date shall be recognised in profit or loss
• Cumulative unrealized gains or losses recognised in OCI shall be reclassified to profit or loss
• The difference between the new carrying amount and the fair value at reclassification date shall be recognised in OCI
• The impairment loss shall be recognised in profit or loss