question archive On January 1, 2010, Alexis Company purchased marketable equity securities to be held as”trading” for P5, 000,000
On January 1, 2010, Alexis Company purchased marketable equity securities to be held as”trading” for P5, 000,000
Subject:AccountingPrice:2.87 Bought7
On January 1, 2010, Alexis Company purchased marketable equity securities to be held as”trading” for P5, 000,000. The entity also paid commission, taxes and other transaction costs amounting to P200, 000. The securities had market value of P5, 500,000 on December 31, 2010 and the transaction costs that would be incurred an sale are estimated at P100, 000. No securities were sold during 2010.
What amount of unrealized gain or loss on these securities should be reported in the 2010 income statement?
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Answer:
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Answer a |
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Fair value |
5, 500,000 |
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Acquisition cost- Trading |
5, 000,000 |
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Unrealized gain |
500, 000 |
If the financial asset is classified as held for “trading”, any realized gain or loss is included as a component of profit or loss.
The transaction costs that would be incurred on sale are ignored because the financial asset held for trading is measured at fair value and not at fair value less cost to sell.
