Question

In: Accounting

Entity A invested in 22,000 shares of a listed company on 1 November 2019 at a...

Entity A invested in 22,000 shares of a listed company on 1 November 2019 at a cost of $4.25 per share.

On 31 December 2019, the shares have a market value of $4.73. The shares are held for trading.

The end of the reporting period is 31 December.

REQUIRED:

(1) Measure the gain or loss of measurement of the shares recognized in the Statement of Profit or Loss on 31 December 2019.

(2) Measure the value of the shares recognized in the Statement of Financial Position on 31 December 2019.

Expert Solution

In case where the shares are held for trading , it is to be recorded at market value/fair value at the end of the year reporting ,

the change in market value over the fair value or the original cost is recorded as unrealised gain or loss andit is to be treated as earnings.An increase or decrease in the fair value of a held-for-trading security requires an accounting adjustment,

The adjustment should be made in a special account "securities fair value adjustment (trading)" a debit iis made when the securities value increase and a credit is mde when the market value decreases for the securities, the other effect is given to the other income.

In the given case,

1. Measurement of gain or loss to be recognised in profit or loss:

The cost value/fair value at the time of purchase = $4.25 per share for 22000 share giving total value = $93500

The market value at the reportig period on 31st december 2019 = $4.73 per share for 22000 share = $ 104060

Thus the net income to be recognised in profit & loss on 31st december 2019 = $10560

2. The value of the shares recognized in the Statement of Financial Position on 31 December 2019.

The value should be the fair value to be shown at the reporting date

it is $4.73 per share for 22000 shares = $ 104060

ekkarill92 answered 2 years ago

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