Accounting for Investments, Volume 2: Fixed Income Securities and Interest Rate Derivatives—A Practitioner's Guide

QUESTIONS

Theory questions

1. What are the criteria for classifying a security as held-to-maturity?

2. What is meant by a “tainting rule” and what are the exceptions to it?

3. Elucidate the revised criteria for measurement as amortized cost in the light of IFRS 9. Is US GAAP proposal significantly different from this?

4. What is meant by “effective interest rate”? What aspects should be considered for arriving at the effective interest rate?

5. Enumerate the significant events in the trade life cycle for an investment in fixed income security.

6. What is meant by amortization of premium or discount on purchase of a fixed income security?

7. Explain what is meant by yield-to-maturity in the context of investment in a fixed income security.

8. How is the impairment of an investment classified as “held-to-maturity” dealt with in the book of accounts?

Objective questions

1. As per US GAAP, changes in fair value for held-to-maturity bonds is reported in:

a) The income statement.

b) Other comprehensive income.

c) No need to report.

d) None of the above.

2. For held-to-maturity bonds mark-to-market is done on valuation date on the basis of:

a) Fair value.

b) Weighted average.

c) Mark-to-market is not done.

d) None of the above.

3. A bond denoted as held-until-maturity has the following aspects except:

a) Positive intent to hold until maturity.

b) Ability to hold until maturity.

c) Bond is not sold before maturity.

d) The issuer has a right to settle the financial asset at an amount ...