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The treatment of unrealized gains or losses in the financial statements depends on whether the securities are classified as held to maturity, trading, or available for sale. Unrealized gains or
Losses on securities classified as held to maturity are not recognized in the financial
Statements; they have no effect on the balance sheet, income statement, and statement of
Cash flows. Even so, many companies choose to disclose the market value of the securities
as part of the narrative description or in the footnotes that accompany the statements.
Whether or not the market value is disclosed, held-to-maturity securities are reported
on the balance sheet at amortized cost.
Investments classified as trading securities are reported in the financial statements
at fair value. Unrealized gains or losses on trading securities are recognized in net
income even though the securities have not been sold. The gain increases net income,
which in turn increases retained earnings. Unrealized gains and losses have no effect on
cash flows.
Investments classified as available-for-sale securities are also reported in the financial
statements at fair value. However, an important distinction exists with respect to
how the unrealized gains and losses affect the financial statements. Even though unrealized
gains or losses on available-for-sale securities are included in the assets on the balance
sheet, they are not recognized in determining net income. increase is reported in a separate equity account called Unrealized Gain or Loss on Available-for-Sale Securities. The statement of cash flows is not affected by recognizing unrealized gains and losses on available-for-sale securities
I will not add a lot on what sreedivi said, just to summarize:
-Held to maturity : valued at amortized cost
-Available for sale: at Fair value:
+Trading Securities : G/L to Inc Stat
+Available for sale :G/L to OCI => Accumulated OCI in B/S, except for foreign exchange G/L on available for sale debt securities to I/S.
can i have more clarification about that matter.....is it mandatory to recognize unrealized gain or loss in case of trading shares investment
Enter on debit side of Profit & Loss account if u loss, and enter on credit side if u gain...
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