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Accounting for Special Transactions Video Lecture - CA Foundation

FAQs on Accounting for Special Transactions Video Lecture - CA Foundation

1. What are special transactions in accounting?

Ans. Special transactions in accounting refer to specific types of business transactions that require special treatment and accounting principles. These transactions include mergers and acquisitions, lease agreements, foreign currency transactions, and investments in other companies. Special accounting rules and guidelines are applied to ensure accurate reporting and proper disclosure of these transactions.

2. How are mergers and acquisitions accounted for in financial statements?

Ans. Mergers and acquisitions are accounted for using the acquisition method. Under this method, the acquiring company records the assets, liabilities, and equity of the acquired company at their fair values on the acquisition date. Any difference between the purchase price and the fair value of the net assets acquired is recognized as goodwill or a gain from a bargain purchase, depending on the circumstances.

3. What is the treatment of lease agreements in accounting?

Ans. Lease agreements are classified as either operating leases or finance leases. Operating leases are recorded as rent expense over the lease term, while finance leases are treated as assets and liabilities on the balance sheet. For finance leases, the leased asset is capitalized and depreciated over its useful life, and the lease liability is recognized and reduced as lease payments are made.

4. How are foreign currency transactions accounted for in financial statements?

Ans. Foreign currency transactions are initially recorded using the exchange rate on the transaction date. At the end of each reporting period, these transactions are revalued using the exchange rate at that date. Any resulting gains or losses are recognized in the income statement. If the transaction involves a non-monetary asset or liability, it is initially recorded at the historical exchange rate and subsequently revalued using the exchange rate on the transaction date.

5. What is the accounting treatment for investments in other companies?

Ans. Investments in other companies are accounted for using either the cost method or the equity method. Under the cost method, the investment is initially recorded at its cost and any dividends received are considered as income. Under the equity method, the investment is initially recorded at cost and subsequently adjusted for the investor's share of the investee's net income or loss. The investor's share of dividends received is also recognized as income.

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Sep 22, 2025 Last updated

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