Questions and Answers of Accounting For Investments

For long positions in CFD contracts, the funding cost will be received by thea. Investorb. Stock exchangec. Sellerd. None of the above
CFDs are open-ended contracts with no fixed end date. So the investor of a long position can keep extending the contract bya. Paying a fixed amount at end of every monthb. Receiving interest based on
In CFD markets, though an investor does not own a share literally, he is still entitled toa. Voting rightsb. Participate in the annual shareholders meetingc. Receive trading recommendations from the
Which of the following are the advantages of CFDs?a. Transparent pricingb. No expiry periodc. Receive dividends on bought open positionsd. Receive interest on sold open positionse. All the above
When an investor buys a long CFD with a contract size of 1,000 at $90 per share and the margin deposit required to be paid is 10 percent, then what is the leverage amount that is being financed to
The following journal entry is passed whena. The buyer of the CFD contract is financed with the leverage amountb. The interest is paid towards the overnight open positionc. The seller of the CFD
Stamford Fund had the following trades in Alcoa in the CFD market. The counterparty is Robinson & Co., which takes a margin of 10 percent of the value of the contract upfront. The funding cost of a
The market rate of Alcoa fluctuated widely, triggering a margin call. Stamford Fund decided to make a deposit of $200,000 in the margin account on that date. Valuation dates are month ends. Prepare
Asian Fund had the following trades in SingTel in the CFD market. The counterparty is Jing Jang & Co., which collects a margin of 10 percent of the value of the contract up front. The funding cost of
On the same day, Asian Fund converted $500,000 into SGD at 1.45.There was a margin call on March 4 and Asian Fund decided to make a deposit of SGD500,000 in the margin account on that date. Valuation
Kyoto Fund had the following trades in PQR shares in the CFD market. The counterparty is Yamashita & Co., which collects a margin of 15 percent of the value of the contract upfront and the funding
On the same day, Kyoto Fund converted $500,000 into JPY at
There was a margin call on March 7, and Kyoto Fund decided to make a deposit of JPY5 million in the margin account on that date. Valuation dates are month ends. Prepare journal entries, general
What is short-selling and is it legal?
What are the different types of short sales?
Outline the process of short-selling.
Can an investor short a share without first arranging for the delivery of the shares?
What are the potential risks of short-selling? How does it compare with going long on a security?
Can an investor simultaneously hold both long and short positions in the same security? If so, will it result in any realized gain from the accounting perspective as well as from the tax
Is short-selling good for the stock markets?
Describe the rationale behind short-selling.
Are there any regulatory requirements of short selling in the U.S. stock markets?
What do you understand by securities lending?
How are the securities lending market regulated?
Who are the participants in securities lending?
Short-selling is preferred by traders based on the expectation that thea. Price of the security will go upb. Price of the security will go downc. Price of the security will remain stabled. None of
The strategy allowing the investor to gain from the declining price of security includesa. Buying call optionsb. Selling call optionsc. Buying put optionsd. None of the above
The process of buying back the shares that are sold short is calleda. Buy to square offb. Buy to coverc. Buy back to coverd. None of the above
A short sale followed up with proper delivery of shares after borrowing is referred to as aa. Regular short saleb. Naked short salec. Sale on deliveryd. None of the above
A short sale not followed up with proper delivery of shares within the standard three-day settlement period is referred to as aa. Regular short saleb. Naked short salec. Sale on deliveryd. None of
In short-selling there is no potential fora. Dividend incomeb. Return from capital gainsc. Profit on saled. All of the above
The action of lending the security of one person to another is referred to as aa. Security transferb. Corporate actionc. Security lendingd. None of the above
When the collateral provided by the buyer to the lender is in the form of cash, the fee is referred to asa. Brokerageb. Rebatec. Lending feed. None of the above
The permitted purposes of stock borrowing includea. To facilitate settlement of tradeb. To facilitate delivery of short salec. To finance the securityd. All of the above
Which of the following is not a participant in security lending?a. Borrowersb. Agent lendersc. Brokersd. All of the above
For the following scenario, prepare journal entries, general ledgers, trial balance, income statement, and balance sheet for Abdul Razack Inc. for the period January 1 through February 28.
Abdul Razack Inc. traded in Coca-Cola shares in a Brazilian stock exchange through Pompoodle brokers and the details are as follows: Trade Details Date Product Quantity Rate (BRL) B/S Brokerage
What is a depositary receipt?
What are the different forms of depositary receipt?
How is a depositary receipt issued and how does it get cancelled?
What is the raison-d’être behind pricing of a depositary receipt?
Enumerate the benefits of depositary receipts to the issuers.
List the benefits of depositary receipts to the investors.
What is an American depositary receipt and how is it different from a global depositary receipt?
What are the different types of ADR issues that a company can resort to?
Are there any risks associated with investments in depositary receipts?If so, list the risks.
What are restricted programs under the U.S. security laws in the context of depositary receipts issuance?
What is the journal entry that is recorded in the books of the investor when the equity shares against ADRs are sold in the local stock exchange?
Further to question 11, will there be any realized gain or loss recorded on the conversion of ADRs into local shares?
An instrument representing ownership interest in securities of a foreign issuer is referred to asa. An ownership certificateb. A depositary receiptc. An ownership receiptd. None of the above
Depositary receipts that are traded in an international market other than the United States are referred to asa. Global depositary receiptsb. International depositary receiptsc. Open market
Issuance of DRs is based on the increase of demand in thea. Local marketb. International marketc. Existing shareholdersd. All of the above
Each DR is backed by a specific number of an issuer’s local shares.This is referred to as thea. DR ratiob. Issuer’s holding ratioc. Market holding ratiod. None of the above
Which of the following does not constitute a benefit of DRs for the issuer?a. Offer a new avenue for raising equity capitalb. Broaden and diversify a company’s investor basec. Enhance a company’s
Which of the following does not constitute a benefit of DRs for investors?a. Facilitate diversification into securities of foreign issuersb. Eliminate unfamiliar custody safekeeping arrangementsc.
ADRs that do not qualify or are not intended to be listed on stock exchanges are referred to asa. Level 1 ADRsb. Level 2 ADRsc. Level 3 ADRsd. None of the above
ADRs listed on stock exchanges are referred to asa. Level 1 ADRsb. Level 2 ADRsc. Level 3 ADRsd. None of the above
Which of the following is not an advantage of ADRs?a. Cost-effectivenessb. Diversification of investmentc. Reduction in administration costd. None of the above
Which of the following is not associated with the risk involved in ADRs?a. Political riskb. Exchange rate riskc. Inflationary riskd. None of the above
Level 1 is the most basic type of ADR where the foreign companya. Wishes its ADR to be listed on the U.S. exchanges aloneb. Does not wish its ADR to be listed on an exchangec. Does not wish its ADR
Regulation S shares cannot be held or traded by any ______________, as defined by SEC Regulation S rules.a. Non-U.S. personb. U.S. personc. European persond. U.S. investment firme. Non-U.S.
In ADR trading, when the investor places the buy order and when the broker executes the same, it becomes a binding contract between the investor and thea. Foreign companyb. Brokerc. Securities
The process of valuing ADRs is known as portfolio valuation, when the market rate at the end of the period is determined from thea. Primary stock exchange where the shares are tradedb. Secondary
Mark Antony Inc. traded in Bovespa shares in a Brazilian Stock Exchange through Henry Frank Brothers brokers and the details are as follows: Trade Details Date Product CCY Quantity Rate B/S Brokerage
Mexico Opportunities Fund traded in America Movil shares in a Mexican Stock Exchange through Goldman Sachs and the details are as follows: Trade Details Date Product CCY Quantity Rate B/S Brokerage
Can securities be transferred from one classification to another category? If so, what precautions should be taken to adjust the unrealized gains or losses?
What is the treatment of stock dividend? Can you report this as income?
How are the tax effects on unrealized gains/losses treated in the books of accounts in the securities classified as trading and as available-for-sale?
What are the similarities in U.S. GAAP and IFRS as far as accounting for equity shares is concerned?
What are the differences in U.S. GAAP and IFRS as far as accounting for equity shares is concerned?
Critically examine the disclosure requirements under U.S. GAAP vis-àvis IFRS.
What are the recent developments in the disclosure requirements under IFRS pursuant to IFRS 7, becoming effective from January 1, 2007?
What is disclosure of cost method investment?
When securities are transferred from trading securities to available-forsale, thena. Gain/loss recognized as unrealized should be reversedb. Gain/loss recognized as unrealized should not be
When securities are transferred from available-for-sale to trading, thena. Unrealized gain/loss will be transferred from other comprehensive income and treated as incomeb. Unrealized gain/loss should
Impairment other than temporary in respect of equity securities should bea. Written down to fair valueb. Treated alike as temporary impairmentc. Written as a loss to be treated as temporaryd. None of
A stock dividend declared should be treated asa. Incomeb. Increase in the value of original shares heldc. Increase to the quantity (position) of shares heldd. All of the above
For securities classified as available-for-sale, which of the following items will be reported in the income statement of current period?a. Both realized and unrealized gainsb. Realized gain alonec.
For income tax purposes, unrealized gain/loss will be recognized for reportinga. Automatically at the end of financial yearb. Only if the securities are liquidated and realizedc. As and when
Unrealized gain/loss included in the income/other comprehensive income representsa. Temporary difference recognized as deferred tax benefitsb. Permanent difference recognized as deferred tax
For available-for-sale securities, the deferred tax effect should be presented ina. The income statementb. Other comprehensive incomec. No need for accountingd. None of the above
For trading securities, the deferred tax effect should be presented ina. The income statementb. Other comprehensive incomec. No need for accountingd. None of the above
As per U.S. GAAP, changes in fair value for available-for-sale securities are reported ina. The income statementb. Other comprehensive incomec. No need to reportd. None of the above
When the equity securities are transferred from available-for-sale(AFS) to trading securities,a. The unrealized gain/loss is recognized on T + 2b. The unrealized gain/loss is not recognized at allc.
Shares received as stock dividend should be added to the original shares and when the mark-to-market process is performed, the impact of the stock dividenda. Should be treated as unrealized gains and
As per the definition in FAS 109, the tax effects of all temporary differences arising from unrealized gain/loss are to be recognized in the financial statements asa. Non-trading incomeb. Items
As per FAS 115, under U.S. GAAP, for securities classified as available-for-sale, all reporting enterprises shall disclosea. Aggregate fair valueb. Gross unrealized holding gainsc. Gross unrealized
For regular-way contracts, the IASB gives the option to follow either trade date accounting or settlement date accounting, provided it is followed consistently for purchases and sales of financial
What are financial assets and financial liabilities?
What are the different categories of financial instruments?
What are the various types of investments?
Define two major standards: U.S. GAAP and IFRS.
What is meant by convergence of U.S. GAAP and IFRS?
A derivative is a financial instrument or contract that settles at aa. Current dateb. Trade datec. Future dated. None of the above
An equity instrument is a contract that evidencesa. Bank interestb. Fixed interestc. Residual interestd. Money market interest
Investments in equity shares, futures, and equity options are classified asa. Either held-to-maturity or available-for-sale securitiesb. Either available-for-sale securities or loans and
An entity should recognize a financial asset on its balance sheet when, and only when,a. The financial liability becomes the contractual provision of the instrumentb. The entity becomes a party to
Speculation is the assumption ofa. Risk of profit, return for the certain possibility of a rewardb. Risk of loss, return for the certain possibility of a rewardc. Risk of loss, return for the
Define equity shares as per the accounting standard FAS 115.
How are passive investments classified for accounting purposes?

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