question archive On January 1, 2010, Lebanon Company purchased equity securities to be held as “at fair value through other comprehensive income” on December 31, 2010, the cost and market value were: Cost Market Security X 2, 000,000 2, 400,000 Security Y 3, 000,000 3, 500,000 Security Z 5, 000,000 4, 900,000 On July 1, 2011, Lebanon Company sold Security X for P2, 500,000
On January 1, 2010, Lebanon Company purchased equity securities to be held as “at fair value through other comprehensive income” on December 31, 2010, the cost and market value were: Cost Market Security X 2, 000,000 2, 400,000 Security Y 3, 000,000 3, 500,000 Security Z 5, 000,000 4, 900,000 On July 1, 2011, Lebanon Company sold Security X for P2, 500,000
Subject:FinancePrice:2.87 Bought7
On January 1, 2010, Lebanon Company purchased equity securities to be held as “at fair value through other comprehensive income” on December 31, 2010, the cost and market value were:
|
|
Cost |
Market |
|
Security X |
2, 000,000 |
2, 400,000 |
|
Security Y |
3, 000,000 |
3, 500,000 |
|
Security Z |
5, 000,000 |
4, 900,000 |
On July 1, 2011, Lebanon Company sold Security X for P2, 500,000.
What amount of gain on sale of financial asset should be reported in the 2011 income statement?
a. 500, 000
b. 100, 000
c. 400, 000
d. 0
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Answer b
Sales price 2, 500,000
Carrying amount of Security X 2, 400,000
Gain on sale of financial asset 100,000
Again, PAS 39, paragraph 26, as amended by PFRS 9, provides that on derecognition of a financial asset, the difference between the consideration received and the carrying amount of the asset is recognized in profit or loss.
The Application Guidance of PFRS 9, paragraph B5.12, provides that amount recognized in other comprehensive income are not subsequently transferred to profit or loss. The cumulative gain or loss may however be transferred within equity, meaning retained earnings.
Accordingly, the cumulative unrealized gain of P400, 000 related to Security X is transferred to equity or retained earnings as follows:
Unrealized gain – OCI 400, 000
Retained Earnings 400, 000
