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

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CHAPTER 13

Accounting for ADR/GDR Investments

LEARNING OBJECTIVES

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

  • Definition of a depositary receipt (DR).
  • Issuance and cancellation of DRs.
  • DR ratio and pricing.
  • Benefits of DRs to issuers.
  • Advantages of DRs to investors.
  • Definition of American depositary receipt (ADR) and global depositary receipt (GDR).
  • Different types of ADR issues.
  • Risks associated with investment in depositary receipts.
  • Trade life cycle of equity investments in ADR.
  • Journal entries to be recorded during the different phases of the trade life cycle.
  • FX revaluation and FX translation process.
  • Illustration of investments in ADRs converted to equity shares in foreign currency.
  • Preparation of journal entries and general ledger accounts.
  • Preparation of income statement and balance sheet after the investments in ADRs are made.

DEFINITION OF A DEPOSITARY RECEIPT

A depositary receipt (DR) represents an ownership interest in securities of a foreign issuer typically trading outside its home market. A DR is a tradable instrument.

The depositary receipts that are trading in the United States are known as American depositary receipts (ADRs). Depositary receipts that are traded in an international market outside the United States are known as global depositary receipts (GDRs). Most depositary receipts are quoted and traded in US$ terms. There are some DRs that are traded in euros and pounds sterling.

The DRs are traded just like equity shares, being ...

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