Evaluation of holdings and revenue classification in financial accounting

FINANCIAL ACCOUNTING

Research Assignment 1:
Solution a:
While evaluating the holdings of an investment company, we would first see if the heads
under which the holdings have been classified. We need to check the proportion of
investments made in different type of securities (Girard, 2014). We need to analyse the risk
return liquidity tax benefits etc in order to evaluate the investments of an investment
company. The holdings will help us calculate the fixed income for the company. We need to
evaluate the portfolio of the company and compare the risks with the return. The adjustments
made in the value of investment at the yearend will help us know the profits and loss due to
fluctuations.
Therefore, the classification of the holdings will be relevant in understanding the financials of
the investment company.
Solution b:
As per the relevant conceptual framework, the revenues earned by the company in the
ordinary course of business are to be classified as revenue from operations and the income
earned from any other sources is to be classified as other income.
In the current scenario we have an investment company (Ittelson, 2009). The primary activity
of the company is investing in various securities and earning from them. The revenues
include appreciation and income from the investments made. This income is to be classified
as revenue from operations, since the primary objective of the company is to earn income
from investments.
Also, the principles of revenue recognition should be adopted by the company. The interest
income should be recognised based on accrual concept of accounting (Lerner, 2009). The
dividends received should be accounted for only when the rights to receive dividends have
been established. All these incomes in different formats would be recorded under revenue
from operations.
Research Topic 2:
Answer: