Transaction Costs Are Capitalised into the Cost of an Investment

question 25

Multiple Choice

Transaction costs are capitalised into the cost of an investment in another entity when:

• A)the entity makes an irrevocable election to present subsequent changes in fair value in other profit or loss rather than other comprehensive income.
• B)the entity makes an irrevocable election to present subsequent changes in fair value in other comprehensive income rather than in profit or loss.
• C)the entity measures the investment at cost
• D)the entity measures the investment at fair value

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Definitions:

Future Short Interest Rate

An estimation or prediction of the interest rates at a future point in time, often used in the valuation of interest rate derivatives.

Stripped Treasuries

Stripped Treasuries are US Treasury securities whose principal and interest payments have been separated to create two new securities, allowing investors to hold and trade the components separately.

Coupon Paying Treasuries

U.S. Treasury securities that offer periodic interest payments until maturity, at which point the face value is repaid to the holder.

Principal

The outstanding balance on a loan.