July 2011
Intermediate to advanced
741 pages
17h 32m
English
book
Accounting for Investments, Volume 2: Fixed Income Securities and Interest Rate Derivatives—A Practitioner's Guide
by R. Venkata Subramani
Content preview from Accounting for Investments, Volume 2: Fixed Income Securities and Interest Rate Derivatives—A Practitioner's Guide
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DISTINCTION BETWEEN CAPITAL GAIN AND CURRENCY GAIN
When an entity trades in foreign currency (i.e., where the trade currency is different from the functional currency), then the total unrealized gain or loss consists of two components—capital gain and currency gain. The US GAAP Statement of Position for investment companies pertaining to the disclosure and treatment of these two components in relation to investment companies is given below with a suitable illustration.
US GAAP—Statement Of Position (SOP 93-4) for investment companies
The change in value of an investment in respect of an asset denominated in a foreign currency on the valuation date from the original value at which it is recorded in the books of accounts in functional currency has two components viz. the capital gain/loss due to change in the market rate of the asset and currency gain/loss due to change in the foreign exchange rate. Investment companies can either choose to combine these two elements for investment transactions or disclose the currency gain/loss due to change in the FX rate separately. As per the SOP it is not mandatory to show that separately even though it indicates that such separate reporting would provide valuable information to the users of the financial statements.
A. Net unrealized gain in functional currency = (Market value in foreign currency × Valuation date spot rate) − (Cost in foreign currency × Transaction date spot rate)
B. Unrealized capital gain in functional currency: (Market ...
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