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Accounting for Investments, Equities, Futures and Options, Volume 1 by R. Venkata Subramani

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CHAPTER 2

Accounting for Equity Investments: Trading

LEARNING OBJECTIVES

After studying this chapter, you should have a grasp of the following:

  • Accounting standards for equity investments.
  • Definition of equity securities and the different types of investment that an investor can make.
  • Definition according to U.S. GAAP and exclusions from this definition.
  • Definition according to IFRS.
  • Distinction between passive investments, significant influence, and controlling interest in an investment.
  • Classification of investments from the intention perspective: trading and available-for-sale.
  • Exchange-traded securities versus over-the-counter (OTC) securities.
  • Trade life cycle of equity investments held for trading purposes.
  • Journal entries to be recorded during the different phases of the trade life cycle.
  • Illustration of investments in long equity shares held for trading.
  • Preparation of general ledger accounts, income statement, and balance sheet, after the equity investments are made.
  • Foreign exchange (FX) revaluation and FX translation process.
  • Consummated FX translation entries versus transient FX translation entries.
  • Trade date accounting versus settlement date accounting.
  • Functional currency and presentation currency.
  • Distinction between capital gains and currency gains in unrealized gains.
  • Illustration of investments in long equity shares in foreign currency.

ACCOUNTING STANDARDS FOR EQUITY INVESTMENTS

This chapter covers the accounting requirements for equity investments. At the ...

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