Accounting for Investments, Volume 2: Fixed Income Securities and Interest Rate Derivatives—A Practitioner's Guide

Accounting for Investments, Volume 2: Fixed Income Securities and Interest Rate Derivatives—A Practitioner's Guide

Released July 2011
Publisher(s): Wiley
ISBN: 9780470825914

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Book description

The financial crisis that started in mid-2007 resulted in the accounting standard setters and market regulators across the globe to come up with several proposals to modify the accounting standards. Accounting for Investments, Volume 2: Fixed Income and Interest Rate Derivatives covers the revised standards that are already pronounced and covers the proposals that are currently being reviewed. The book begins with the basics for the financial products covered, defining the product, the way it is structured, its advantages and disadvantages, and the different events in the trade life cycle. It then gives an exhaustive treatment of various accounting entries that should be recorded by any entity holding investments in the form of fixed income securities and interest rate derivatives.

Table of contents

  1. Cover
  2. Title
  3. Copyright
  4. Dedication
  5. Contents
  6. Foreword
  7. Introduction
  8. Preface
  9. Acknowledgments
  10. Chapter 1: Fixed Income Securities—Theory
    1. Learning Objectives
    2. Fixed Income Securities in General
    3. Basics of the Bond Market
    4. Definition of Financial Instruments
    5. Categories of Financial Instruments—An Overview
    6. Questions
  11. Chapter 2: Fixed Income Securities—Fair Value through Profit or Loss
    1. Learning Objectives
    2. Meaning and Definition of Fixed Income Securities
    3. Classification of Debt Securities as “Fair Value through Profit or Loss”
    4. Accounting for Fixed Income Securities
    5. Trade Life Cycle for Fixed Income Securities—Fair Value through Profit or Loss
    6. Corporate Action
    7. Additional Events in the Trade Life Cycle
    8. Complete Solution to the Illustration
    9. FX Revaluation and FX Translation Process
    10. Distinction between Capital Gain and Currency Gain
    11. Illustration 1: Investment in Bonds held for Trading Purposes
    12. Solution to Illustration 1: Investment in Bonds held for Trading Purposes
    13. Problem 1: Investment in Bonds (Trading) in Foreign Currency (AUD)
    14. Accounting Entries in Functional Currency
    15. Summary
    16. Questions
  12. Chapter 3: Fixed Income Securities—Available-for-Sale
    1. Learning Objectives
    2. Basic Understanding of Available-for-Sale (AFS)
    3. Accounting for Fixed Income Securities Classified as Available-for-Sale
    4. Option to Designate a Financial Asset at Fair Value through Profit or Loss
    5. Accounting for Fixed Income Securities
    6. Trade Life Cycle for Fixed Income Securities—Available-for-Sale
    7. FX Translation on Available-for-Sale Securities
    8. Impairment of Available-for-Sale Fixed Income Securities
    9. Bonds Classified as Available-for-Sale—Complete Solution to the Illustration
    10. Problem 1—Bonds Held as Available-for-Sale in USD
    11. FX Revaluation and FX Translation process
    12. Accounting Entries in Functional Currency—USD
    13. Summary
    14. Questions
  13. Chapter 4: Fixed Income Securities—Held-to-Maturity
    1. Learning Objectives
    2. Meaning of Securities Classified as Held-to-Maturity (HTM)
    3. Exceptions to the Rule for Classification as Held-to-Maturity
    4. Effective Interest Rate
    5. Accounting for Securities Classified as Held-to-Maturity
    6. Trade Life Cycle for Fixed Income Securities—Held-to-Maturity
    7. Illustration of Bonds Held-to-Maturity—Complete Solution
    8. Problem—2: Bonds Held as Held-to-Maturity in BRL (Foreign Currency)
    9. Solution to Problem—2: Bonds Held as Held-to-Maturity in BRL (Foreign Currency)
    10. Accounting Entries in Functional Currency—Problem 2—USD
    11. Summary
    12. Questions
  14. Chapter 5: Presentation, Disclosures & Reclassification
    1. Learning Objectives
    2. Relevant Accounting Standards
    3. General Disclosure as per IFRS 7
    4. A. Significance of Financial Instruments for Financial Position and Performance
    5. Statement of Comprehensive Income
    6. Other Disclosures
    7. B. Qualitative Disclosures
    8. C. Quantitative Disclosures
    9. Amendments to IAS 39 & IFRS 7 (October 2008)
    10. Reclassification as per IFRS 9
    11. Presentation of Financial Instruments
    12. Summary
    13. Exercise
  15. Chapter 6: Interest Rate Derivatives—Theory
    1. Learning Objectives
    2. Derivatives in a Financial Instrument
    3. Definition of Derivatives as per Accounting Standards
    4. Accounting Standards for Interest Rate Derivatives
    5. Differences between US GAAP and IFRS
    6. Over-the-Counter Contracts
    7. Exchange-Traded Derivative Contracts
    8. Benefits of Interest Rate Derivatives
    9. International Swaps and Derivatives Association (ISDA)
    10. Types of Interest Rate Derivatives
    11. Hedged or Hedging Instrument—Status of Various Financial Instruments
    12. Summary
    13. Exercise
  16. Chapter 7: Interest Rate Swaps—Receive Fixed Pay Floating
    1. Learning Objectives
    2. Meaning of Interest Rate Swap
    3. Definition of a Derivative
    4. Accounting for Interest Rate Swaps
    5. The Trade Life Cycle for Interest Rate Swaps
    6. Receive Fixed & Pay Floating—Illustration 1
    7. Complete Solution to Illustration 1: Interest Rate Swap—Receive Fixed Pay Floating
    8. Problem1: Interest Rate Swap—Receive Fixed Pay Floating
    9. Solution to Problem 1: Interest Rate Swap—Receive Fixed Pay Floating
    10. Summary
    11. Questions
  17. Chapter 8: Interest Rate Swaps—Pay Fixed Receive Floating
    1. Learning Objectives
    2. Meaning of Receive Floating and Pay Fixed Type of Interest Rate Swap
    3. Accounting Standards
    4. The Trade Life Cycle for Interest Rate Swaps
    5. Pay Fixed and Receive Floating—Illustration 1
    6. Complete Solution to Illustration 1: Interest Rate Swap—Receive Floating Pay Fixed
    7. Pay Fixed to Receive Floating—USD
    8. Solution
    9. Summary
    10. Questions
  18. Chapter 9: Interest Rate Caps
    1. Learning Objectives
    2. Interest Rate Caps—Description of the Product
    3. Accounting for interest rate caps
    4. The Trade Life Cycle for Interest Rate Caps
    5. Interest Rate Cap Instrument—An Illustration
    6. Complete Solution to the Illustration—Interest Rate Cap
    7. Problem 1: Interest Rate Cap—Pay
    8. Solution to Problem 1: Interest Rate Cap—Pay
    9. Problem 2: Interest Rate Cap—Pay
    10. Solution to Problem 2: Interest Rate Cap—Pay
    11. Accounting Entries in Functional Currency
    12. Problem 3: Interest Rate Cap—Receive
    13. Solution to Problem 3: Interest Rate Cap—Receive
    14. Problem 4: Interest Rate Cap—Receive
    15. Solution to Problem 4: Interest Rate Cap—Receive
    16. Problem 5: Interest Rate Cap—Receive
    17. Solution to Problem 5: Interest Rate Cap—Receive
    18. Accounting Entries in Functional Currency
    19. Summary
    20. Questions
  19. Chapter 10: Interest Rate Floors
    1. Learning Objectives
    2. Interest Rate Floors—Description of the Product
    3. Accounting for Interest Rate Floors
    4. The Trade Life Cycle for Interest Rate Floors
    5. Interest Rate Floor Instrument—An Illustration
    6. Complete Solution to Illustration
    7. Problem 1: Interest Rate Floor—Sale of Floor Instrument
    8. Solution to Problem 1: Interest Rate Floor
    9. Problem 2: Interest Rate Floor
    10. Solution to Problem 2: Interest Rate Floor
    11. Journal Entries in Functional Currency Problem 2: Interest Rate Floor
    12. Illustration: IRD Floor—Receive
    13. Comprehensive Solution to Illustration
    14. Problem 1: Interest Rate Floor (Receive)
    15. Solution to Problem 1: Interest Rate Floor (Receive)
    16. Problem 2: Interest Rate Floor (Receive)
    17. Solution to Problem 2: Interest Rate Floor (Receive)
    18. Accounting Entries in Functional Currency Problem 2: Interest Rate Floor (Receive)
    19. Summary
    20. Questions
  20. Chapter 11: Interest Rate Collar
    1. Learning Objectives
    2. Meaning of Interest Rate Collar
    3. Collar or Reverse Collar as a Hedging Instrument
    4. Accounting for Interest Rate Collar
    5. The Trade Life Cycle for an Interest Rate Collar
    6. Interest Rate Collar Instrument—An Illustration
    7. Complete Solution to the Illustration—Interest Rate Collar
    8. Problem 1: Interest Rate Collar
    9. Solution to Problem 1
    10. Entries in Functional Currency
    11. Meaning of Interest Rate Reverse Collar
    12. Accounting for Interest Rate Reverse Collar
    13. The Trade Life Cycle for Interest Rate Reverse Collar
    14. Problem 1: Reverse Collar
    15. Solution to Problem 1: Reverse Collar
    16. Problem 2: Reverse Collar
    17. Solution to Problem 2: Reverse Collar
    18. Entries in Functional Currency
    19. Summary
    20. Questions
  21. Chapter 12: Cross-Currency Swaps (XCCY Swaps)
    1. Learning Objectives
    2. A Meaning of Cross-Currency Swaps (XCCY Swaps)
    3. Accounting for Cross-Currency Swaps
    4. The Trade Life Cycle for Cross-Currency Swaps
    5. Complete Solution to Illustration 1: Cross Currency Interest Rate Swap—USD/GBP
    6. Accounting Entries in Functional Currency
    7. Problem 1: Cross Currency Interest Rate Swap—USD/EUR
    8. Accounting Entries in Functional Currency
    9. Summary
    10. Questions
  22. Bibliography
  23. Index

Product information

  • Title: Accounting for Investments, Volume 2: Fixed Income Securities and Interest Rate Derivatives—A Practitioner's Guide
  • Author(s):
  • Release date: July 2011
  • Publisher(s): Wiley
  • ISBN: 9780470825914