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 ...
