Theory Questions

1. Define equity shares as per the accounting standard FAS 115.

2. How are passive investments classified for accounting purposes?

3. What is readily determinable fair value as per FAS 115?

4. What is the fundamental difference between the trading and available-for-sale classifications of equity investments?

5. When is an investor supposed to have significant influence on the investee company, and what is the method of accounting for such investments?

6. Controlling interest is acquired if an investor holds more than 50 percent—is this statement true? Discuss your answer with examples.

7. What are the main differences between exchange-traded securities and over-the-counter securities?

8. Explain in brief the functions and functioning of stock exchanges.

9. List the various events during the trade life cycle for equity shares that are held as trading, along with the accounting entries to be recorded.

10. What are corporate actions and what is their impact with regards to accounting?

11. Commissions and other expenses for acquiring the shares are treated as part of the cost of the equity—is this true, and if so, what are the exceptions?

12. What are the differences between trade date accounting and settlement date accounting?

13. What is the reversal journal entry for mark-to-market?

14. Explain the process of FX revaluation and FX translation. What are the differences between the two?

15. What is meant by functional currency and how it is determined?

16. How do you distinguish between capitals gains and currency gains due to fluctuation in foreign exchange rate? Is it mandatory to divulge the two gains separately?

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