02 – Trading – FVPL

Trading – FVPL – Journal Questions

by R. Venkata Subramani

Journal Questions

1. Michael James bought 8,500 shares of NovoSotia on April 15 for $12 per share. On the same day the closing price of NovoSotia was $11.45 per share. Calculate the unrealized gains/loss at end of day and pass the journal entry.

2. On April 24 he sold 4,000 shares of NovoSotia at $14 per share. Pass necessary journal entries to record the sale of these shares and also the subsequent realized/unrealized gain or loss as of that date. The closing rate of NovoSotia shares on April 24 is $13.60.

3. On May 31, NovoSotia declared a dividend of $1 per share with record date of April 20. On June 10 the payment was made. Calculate the dividend amount received by Michael James and also pass entries for dividend declaration and actual receipt of such dividend.

4. On June 25 Mr. James bought an additional 2,000 shares of NovoSotia at $16 per share. On July 28 he sold another 4,000 shares at $14.65 per share. Mr. James follows the last in, first out (LIFO) method and the shares were held for trading purposes. Calculate the realized gains or loss and pass entry to give the effect for the same.

5. Prepare realized/unrealized gains and loss account (ledger account) giving effect to the preceding transactions.

Trading Securities: Foreign Currency—HKD

For the following scenario, prepare journal entries, general ledgers, trial balances, income statements, and balance sheets.
James Trading Inc. traded in Avichina Industry shares in a Hong Kong stock exchange through Nomura Securities brokers, and the details are as follows.

Trade Details

Date                   Product                  Quantity             Rate             B/S             Brokerage
 8-Jan-X1     Avichina Industry        35,000               1.33HKD        B                 155 HKD
 12-Jan-X1   Avichina Industry        20,000               1.39 HKD       B                 120 HKD
15-Feb-X1   Avichina Industry        50,500               1.25 HKD       S                 195 HKD

Other Details
  Settlement: T + 3

Liquidation Method
  FIFO

Market Rate of Avichina Industry Shares in HKD
  January 31: 1.28.
  February 28: 1.42.
  March 31: 1.55. 

FX Rate: USD/HKD
  January 8: 7.72
  January 11: 7.79
  January 12: 7.69
  January 15: 7.90
  January 31: 7.83
  February 15: 7.75
  February 18: 7.81
  February 28: 7.76
  March 31: 7.99

Functional Currency
  USD

Trading Securities: Foreign Currency—IDR

For the following scenario, prepare journal entries, general ledgers, trial balance, income statement, and balance sheet.
Jakarta Trading Fund traded in PT. Perusahaan Gas shares in a Hong Kong stock exchange through Vickers & Co. brokers, and the details are as follows.

Trade Details

Date                   Product                Quantity           Rate (IDR)           B/S             Brokerage (IDR)
 5-Jan-X1     PT. Perusahaan          16,000             10,071.39            B                161,150,080
15-Jan-X1    PT. Perusahaan          18,000             10,329.90            B                171,200,000
 5-Feb-X1    PT. Perusahaan           30,500            10,700.00            S                 271,200,000

Other Details
  Settlement: T + 3

Liquidation Method
  FIFO

Market Rate of PT. Perusahaan Shares in IDR
  January 31: 10,101.10
  February 28: 10,800.42
  March 31: 10,255.15 

FX Rate: USD/IDR
  January 5: 9,013
  January 8: 9,040
  January 15: 9,115
  January 18: 9,102
  January 31: 9,100
  February 5: 9,070
  February 8: 9,109
  February 28: 9,120
  March 31: 9,125

Functional Currency
  USD

Trading Securities: Foreign Currency—PKR

For the following scenario, prepare journal entries, general ledgers, trial balance, income statement, and balance sheet.
Karachi Overseas Fund traded in Adamjee Insurance shares in the Pakistan stock exchange through Auerbach & Co. brokers, and the details are as follows.

Trade Details

Date                  Product              Quantity             Rate           B/S               Brokerage
15-Feb-X1       Adamjee               2,000                189 PKR      B                  378 PKR
15-Mar-X1       Adamjee               1,600                198 PKR      S                  316 PKR

Other Details
  Settlement: T + 3

Liquidation Method
  FIFO

Market Rate of Adamjee Insurance Shares in PKR
  February 28: 190
  March 31: 185
  April 30: 205 

FX Rate: USD/PKR
  February 15: 60.81
  February 18: 60.68
  February 28: 60.71
  March 15: 60.75
  March 18: 60.72
  March 31: 60.73
  April 30: 60.78

Functional Currency
  USD

Trading Securities: Foreign Currency—JPY

For the following scenario, prepare journal entries, general ledgers, trial balance, income statement, and balance sheet.
Itochu Capital Japan Fund traded in Nissan shares in the Nikkei through Akita Mori brokers, and the details are as follows.

Trade Details

Date                  Product                Quantity            Rate(JPY)           B/S             Brokerage (JPY)
11-Feb-X1        Nissan                  4,000                1,450                B                    1,200
20-Mar-X1        Nissan                  2,200                1,750                S                       660

Other Details
  Settlement: T + 3

Liquidation Method
  FIFO

Market Rate of Nissan Shares in JPY
  February 28: 1,620
  March 31: 1,800
  April 30: 1,760 

FX Rate: USD/JPY
  February 11: 104.50
  February 28: 104.85
  March 20: 105.25
  March 31: 105.00
  April 30: 105.50

Functional Currency
  USD

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Trading – FVPL – Objective Questions

by R. Venkata Subramani

Objective Questions

1. The equity method of accounting is adopted in:
a. Controlling interest.
b. Significant influence.
c. Passive investments.
d. None of the above.

2. In trade date accounting, a liability payable for acquiring the asset will be recorded on:
a. The trade date.
b. The reporting date.
c. The settlement date.
d. All of the above.

3. A broker-dealer who records the transactions on settlement date basis should compute the net capital on:
a. The trade date.
b. The reporting date.
c. The settlement date.
d. Any of the above.

4. The definition of equity security as per FAS 115 does not applies to:
a. Investment companies.
b. Nonprofit organizations.
c. Brokers and dealers in securities.
d. All of the above.

5. The shareholder will recognize the dividend income:
a. On the date of dividend declaration.
b. On the ex-dividend date.
c. At the end of accounting period.
d. None of the above.

6. A shareholder is said to have controlling interest in the company if he holds:
a. Less than 20 percent shares of the investee company.
b. From 20 to 50 percent shares of the investee company.
c. More than 50 percent shares of the investee company.
d. None of the above.

7. Unrealized gains or loss computed for available-for-sale (AFS) securities will be reported as:
a. Income/loss on the income statement.
b. Other comprehensive income.
c. Dividend income.
d. None of the above.

8. For private equity investment, the responsibility of fulfillment of the obligation is vested with:
a. The stock exchange.
b. The broker.
c. The seller.
d. All of the above.

9. If the net holding of any share is negative, then it is referred to as:
a. Available-for-sale (AFS).
b. A long position.
c. A short position.
d. Trading securities.

10. Under the incremental value method, mark-to-market entry is reversed:
a. On T + 2.
b. At the end of the accounting period.
c. On the next valuation date.
d. None of the above.

11. The fair value of securities that are listed and traded through stock exchanges is determined based on:
a. The highest bid price quoted in the exchange for each day.
b. Market quotes at the end of each day.
c. Market quotes at the opening of each day.
d. The forecasted price received from stock broker.
e. The average price of the high and low recorded in the exchange.

12. In private equity investments where the trade is executed over-the-counter, who among the following will be the actual counterparty?
a. The stock exchange in which the stock is listed.
b. The buyer.
c. The seller.
d. The custodian bank.
e. The broker.

13. When the net holding of any given share is shown in negative value, it refers to:
a. Quantity of short position.
b. Loss from long position.
c. Unrealized loss from short position.
d. Quantity of long position.
e. Dividend receivable.

14. For exchange-traded securities, the delivery of the securities either in physical or in electronic form takes place:
a. When the trade is booked.
b. When the broker confirms the receipt of payment.
c. Immediately after the payment is received by the stock exchange.
d. On T + 1.
e. At a predetermined future date.

15. When a company announces a dividend, who among the following is entitled to receive it?
a. An investor listed as holder of stock as of the dividend declaration date.
b. An investor listed as holder of stock as of the ex-dividend date.
c. An investor listed as holder of stock as of the day before ex-dividend date.
d. An investor listed as holder of stock as of the record date.
e. An investor listed as holder of stock as of the dividend payment date.

16. If an investor buys 1,000 shares at $50 and the initial margin is 60 percent and the maintenance margin is 30 percent, he will receive the first marginal call when the stock price falls below:
a. $14.00
b. $21.00
c. $28.57
d. $49.99

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Trading – FVPL – Theory Questions

by R. Venkata Subramani

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 [...]

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Trading – FVPL – Summary

by R. Venkata Subramani

Equity securities are represented by ownership shares as common stock or preferred stock, rights to acquire ownership shares such as stock warrants or rights, or call options. The category also includes rights to dispose of ownership in shares by way of put options. Equity security is defined in FAS 115 as any security representing an [...]

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