PSAK NO. 50 ABOUT ACCOUNTING FOR INVESTMENTS IN CERTAIN SECURITIES

STATEMENT OF FINANCIAL ACCOUNTING STANDARD NO. 50 

ACCOUNTING FOR INVESTMENTS IN CERTAIN SECURITIES 

The paragraphs printed in bold italic type are the standards, which should be read in the context of the explanatory paragraphs and implementation guidance printed in normal type. This Statement is not intended to apply to immaterial items. 

Objective 

01 In the Statements of Financial Accounting Standard previously issued, there remains discrepancies in the recognition and measurement of investments in securities, particularly debt securities. This Statement is intended to standardize the accounting and reporting for investments in both debt securities and equity securities. 

02 This Statement addresses the application of fair value accounting for debt and equity securities which are intended for trading purposes by the holders of the securities, debt securities which are intended to be held until maturity or securities which do not fall in any of these two categories. 

Scope 

03 This Statement should be applied in the accounting and reporting for investments in equity securities for which the fair values are readily determinable and for all investments in debt securities, except as discussed in paragraph 4. 

(a) The fair value of an equity security is considered readily determinable if sales price or bid-and-asked prices are available on the Jakarta Stock Exchange, the Surabaya Stock Exchange or any other stock exchange in Indonesia. Shares which are restricted from sale do not meet this definition. 

(b) The fair value of an equity security traded only on a foreign stock exchange is considered readily determinable if that stock exchange has trading volumes and activities which are comparable to or better than the domestic stock market. 

(c) The fair value of an investment in a mutual fund is readily determinable if the net asset value is determined and published, and is the basis for current transactions. 

04 This Statement does not address: 

(a) investments in equity securities which are recorded under the equity method and investments in subsidiary companies; Accounting for Investments in Certain Securities SFAS No. 50

(b) investments in not-for-profit organizations.

05 This Statement amends paragraphs 8, 9 and 10 of SFAS No. 31 which applies to the banking industry. This Statement is a supplement to: 

(a) SFAS No. 13, Accounting for Investments, 

(b) paragraph 38 of SFAS No. 28, Accounting for Casualty Insurance (1996 Revision),

(c) paragraph 39 of SFAS No. 36, Accounting for Life Insurance, and

(d) paragraph 62(b) of SFAS No. 42, Accounting for the Securities Industry. 

Definitions 

06 The following are the definitions of the terms used in this Statement: 

Securities are marketable instruments, namely debentures, commercial paper, shares, bonds, debt certificates, collective investment contract participation units, futures contracts on securities, or any derivatives of a security.

Debt securities are securities which reflect a debtor relationship between the creditor and the entity issuing the securities. 

Equity securities are securities which reflect the rights of ownership over certain equity, or the rights to acquire (for instance, warrants, purchase options) or the rights to sell (such as sale options) such ownership at a price which has already or will be determined. 

Fair value is the amount which can be obtained from the exchange of a financial instrument between willing parties, not from forced or liquidation sale. If a market price is available for an instrument, the fair value, in accordance with the application of this Statement, is calculated by multiplying the number of shares traded by the market price per unit. 

Holding gain or loss is the net change in the fair value of a security, not including: (a) dividends or interest income which have been recognized but not yet received (accrual basis), and (b) any permanent impairment in the value of the security.Accounting for Investments in Certain Securities SFAS No. 50

ACCOUNTING FOR INVESTMENTS IN SECURITIES 

07 At the time of acquisition, the enterprise should classify debt securities and equity securities in one of the three categories below: 

(a) held-to-maturity, 

(b) trading, 

(c) available-for-sale. 

At each reporting date, the appropriateness of the classification should be reassessed.

Securities Classified in the “Held-to-Maturity” Category 

08 If the enterprise intends to hold debt securities until maturity, the investment in such securities should be classified in the “held-to-maturity” category and presented in the balance sheet at acquisition cost, net of the amortization of premium or discount. 

09 The enterprise may change its intent to hold certain debt securities until maturity by selling or transferring the debt securities concerned. The sale or transfer of debt securities is not considered to be a change in the intent to “hold-to-maturity” if the result of the following circumstances: 

(a) there is evidence of a significant deterioration in the issuer’s creditworthiness. 

(b) there is a change in the tax law which eliminates or raises the existing final tax rate on the interest relating to the debt securities (not including changes in tax laws which revise the tax rates on interest in general). 

(c) there is a major business combination or major disposition (such as the sale of a segment) that necessitates the sale or transfer of “held-to-maturity” securities to maintain the enterprise’s credit risk or existing interest rate risk position. 

(d) there is a change in the requirements or regulations which significantly changes the definition of permissible investments or the maximum level of investments permissible in certain types of securities, to the extent that the enterprise is required to dispose held-to-maturity securities. 

(e) there is a change in the government regulations pertaining to minimum capital requirements for certain industries which causes the enterprise downsize its business activities or the scale of its operations and selling its held-to-maturity securities. 

(f) there is a change in the government regulations resulting in the increase in the risk weights of debt securities in the calculation of specific ratios, for example in the calculation of the solvency of an Accounting for Investments in Certain Securities SFAS No. 50insurance company or the calculation of the capital adequacy ratio for the banking industry. 

In addition to the changes discussed above, other events that are nonrecurring and are extraordinary in nature which cannot be anticipated, may cause the enterprise to sell or transfer certain securities in the held-to-maturity category, without necessarily calling into question its initial intent to hold other securities in the same category to maturity. All sales and transfers of securities in the “heldto-maturity” category should be disclosed in accordance with the requirements of paragraph 23. 

10 An enterprise should not classify debt securities in the “held –tomaturity” category if the enterprise has the intent to hold the securities for only an indefinite period. Consequently, debt securities should not be classified in this category if the enterprise intends to sell such securities, for example, in response to: 

(a) changes in market interest rates and changes related to similar risks, 

(b) liquidity needs, 

(c) changes in the availability of and rates of return on alternative nvestments, 

(d) changes in funding sources and terms, 

(e) changes in foreign currency risk. 

11 In the connection with asset and liability management of the entity, management may decide that the entity’s financial risk management objectives can be accomplished without having all of its securities available for sale. In that case, the enterprise may choose to designate certain debt securities in the held-to-maturity category and unavailable for sale to accomplish its financial risk management objectives. Based on the intent to hold such debt securities, the enterprise can account for these debt securities based on acquisition cost (including the amortization of discount or premium). 

12 Sales of debt securities that meet either of the following two conditions may be considered as held-to-maturity for purposes of the classification of securities as discussed under paragraphs 8 and 13, and for purposes of disclosure as discussed under paragraph 23: 

(a) The sale of securities takes place on a date which is sufficiently close to the maturity date, such that the interest rate risk is no longer a determining factor in the selling price. The date of the sale concerned is so close to maturity that changes in the market interest rate no longer have any significant effect on the fair value of the securities. 

(b) The sale of securities occurs after the enterprise has already collected a substantial portion (at least 85 percent) of the carrying value of investment in debt securities. Such payments may occur as a result of prepayments on the debt securities or scheduled payments on debt securities (which covers both principal and interest). For securities with Accounting for Investments in Certain Securities SFAS No. 50variable interest rates, the scheduled payments need not be equal, depending on the prevailing interest rate. 

Securities Classified in the “Trading” and “Available-for-Sale” Categories 

13 Investments in debt securities that are not classified as “held-to-maturity” and equity securities that have readily determinable fair values, should be classified in one of the following categories and measured at fair value in the balance sheet: 

(a) “Trading”. Securities that are bought and held for the purpose of selling them within a short period of time should be classified in the “trading” category. Securities in this category are usually bought and sold very frequently. These securities are held for the purpose of generating profits on short-term differences in price. 

(b) “Available-for-sale”. Securities which are not classified in either the “trading” or “held-to-maturity” categories should be classified in the “available-for-sale” category. 

Reporting Changes in Fair Value 

14 Unrealized holding gains or losses for trading securities should be recognized in earnings. Unrealized holding gains or losses for available-for-sale securities (including securities classified as current assets) should be included as a separate component of shareholders’ equity, and cannot be recognized in earnings until the gains or losses are realized.

15 For all the three categories of securities above, dividend and interest income, including the amortization of premium and discount arising at acquisition, are recognized in earnings. This Statement does not affect the methods used for recognizing and measuring the amount of dividend and interest income. Realized gains or losses for securities classified as either available-for-sale or held-to-maturity categories also should be reported in earnings. 

Changes in Investment Categories 

16 The transfer of securities between categories is accounted for at fair value. At the date of transfer, unrealized holding gain or loss is accounted for as follows: 

(a) for securities transferred from the trading category, unrealized holding gains or losses at the date of the transfer will have already been recognized in earnings and should not be reversed. Accounting for Investments in Certain Securities SFAS No. 50

(b) for securities transferred into the trading category, unrealized holding gains or losses at the date of the transfer is recognized in earnings immediately. 

(c) for debt securities transferred into the available-for-sale category from the held-to-maturity category, unrealized holding gains or losses should be recognized in a separate component of shareholders’ equity at the date of the transfer. 

(d) for debt securities transferred into the held-to-maturity category from the available-for-sale category, unrealized holding gains or losses at the date of the transfer should continue to be reported in a separate component of shareholders’ equity, but should be amortized over the life of the security consistent with the amortization of premium or discount. The amortization of the unrealized holding gains or losses will have an effect on interest income similar to the amortization of the premium or discount for the held-to-maturity securities. 

17 Consistent with paragraphs 8 through 10, transfers from the held-to-maturity category should be rare, except for transfers due to the changes in circumstances identified in paragraph 9. Because of their nature, transfers to or from the trading category also should be rare. 

Impairment of Securities 

18 For individual securities classified in the available-for-sale and held-to-maturity categories, an enterprise should determine whether a decline in fair value below the acquisition cost (including the amortization of premiums and discounts) is permanent or not. If it is probable that the investor will not be able to collect all amounts due according to the contractual terms of a debt security, a permanent impairment is considered to have occurred. If the decline in fair value is judged to be permanent, the cost basis of the individual security should be written down to fair value, and the amount of the write-down should be recognized in the income statement as a realized loss. The new cost basis cannot be changed again. Any subsequent increase in the fair value of an available-for-sale security should be included in the separate component of shareholders’ equity, as discussed in paragraph 14. A subsequent decline in fair value, if not a permanent impairment, also should be included in the separate component of shareholders’ equity. 

PRESENTATION 

19 An enterprise that presents its balance sheet where the assets are classified by current assets, fixed assets and other assets and where liabilities are classified by current and non-current liabilities (classified balance sheet) should report all trading securities as current assets. Securities in the held-to-maturity and available-for-sale Categories are presented as current assets or non-current assets based Accounting for Investments in Certain Securities SFAS No. 50on the decision of the management. Specifically, for debt securities in the held-to-maturity and available-for-sale categories which mature in the following year should be classified as current assets. 

20 In the statement of cash flows, cash flows used for or originating from purchases, sales, and maturities of securities in the available-for-sale and held-to-maturity categories should be classified as cash flows from investing activities, and reported gross for each security category in the statement of cash flows. Cash flows for or from purchases, sales, and maturities of securities in the trading category should be classified as cash flows from operating activities. 

DISCLOSURE 

21 For securities classified in the available-for-sale and heldto-maturity categories, the following information should be disclosed in the notes to the financial statements for each major category of security: 

(a) aggregate fair value, 

(b) unrealized holding gains, 

(c) unrealized holding losses, 

(d) acquisition cost, including unamortized premium and discount. 

Financial institutions (banks, credit cooperatives, financing and insurance institutions) should disclose each major security type as follows: 

(a) equity securities, 

(b) government - issued debt securities, 

(c) corporate debt securities, 

(d) debt securities guaranteed by mortgage, and 

(e) other debt securities. 

22 For debt securities classified in the available-for-sale and heldto-maturity categories, information about the maturities of the securities should be disclosed in the notes to the financial statements for the most recent year presented. Information about the maturity dates may be combined based on the time period since the balance sheet date. Financial institutions should disclose the fair values and acquisition cost, including unamortized discounts and premiums, based on at least 4 maturity groupings as follows: 

(a) maturity in less than 1 year, 

(b) maturity between 1 and 5 years, 

(c) maturity between 5 and 10 years, 

(d) maturity in more than 10 years. 

Securities with no specific maturity dates, such as securities where payment is guaranteed by mortgage (hipotik), may be disclosed separately (not Accounting for Investments in Certain Securities SFAS No. 50 allocated to any of the maturity groupings above). If allocated, the basis for allocation also should be disclosed. 

23 For each accounting period, an enterprise should disclose: 

(a) proceeds from the sales of available-for-sale securities, and realized gains or losses on those sales. 

(b) the basis on which acquisition cost was determined in computing realized gain or loss (for instance, specific identification, average, or other methods). 

(c) gains and losses included in earnings from transfers of securities from the available-for-sale category into the trading category. 

(d) the change in unrealized holding gain or loss that has been included in the separate component of shareholders’ equity during the period. 

(e) the change in unrealized holding gain or loss on trading securities that has been included in earnings during the period. 

24 For each sale or transfer of securities from the held-to-maturity category, the following should be disclosed: 

(a) the amount of accumulated discount or premium for securities sold or transferred to another category, 

(b) gain or loss on the sale of securities, whether realized or unrealized, and 

(c) the circumstances which led to the decision to sell or transfer the securities. 

EFFECTIVE DATE 

25 This Statement is effective for the preparation and presentation of financial statements covering reporting periods on or after January 1, 1999. Earlier application is encouraged. 

26 The initial application of this Statement will have an effect on the retained earnings balance. This effect should be reported as the effect of a change in accounting principle in a manner similar to reporting the cumulative effect of a change in accounting principle as discussed in paragraph 42 of SFAS No. 25, Net Profit or Loss for the Period, Fundamental Errors and Changes in Accounting Policies. The effect on retained earnings includes the reversal of amounts previously included in earnings to the extent of the unrealized holding losses relating to available-for-sale securities. The unrealized holding gain or loss for securities classified as available-for-sale as of the date that this Statement is first applied is included in the separate component of shareholders’ equity.

source:

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