Question

Assume that Sohar Power Company (SPC) purchased market securities for OMR 8.50 Million in August 31, 2017. In early December 2017, the fair value of securities increased by 2 Million to reach at OMR 10.50 Million. In early June 2018, fair value again increased by OMR 1 Million and reached to OMR 11.50 M. In the annual closing of June 30th 2018, SPC sold these securities at a fair value of OMR 11.50 M to gain the profit.

Required:

a) Using US GAAP standards, what will be the accounting treatment of increased fair value of securities in semi-annual (6months) following management financial statements as of December 31, 2017 by SPC?

i. Balance Sheet as of management accounts December 31, 2017

ii. Income Statement as of management accounts December 31, 2017  

iii. Comprehensive Income Statement as of management accounts December 31, 2017

(2x2x2 Marks)

b) Using US GAAP standards, what will be the accounting treatment of increased fair value and sales of securities in annual audited financials for June 30th, 2018 by SPC? (Write separate accounting treatments in all yearly financial statements)  

Answer 1

	a.)	i. Balance Sheet as of management accounts December 31, 2017
		Assets
			(OMR in Millions )
		Market Securities	10.50
		(8.50 + 2 )
		ii. Income Statement as of management accounts December 31, 2017
		Nothing will be report on income statement for impact for fair value adjustment.
		iii. Comprehensive Income Statement as of management accounts December 31, 2017
			(OMR in Millions )
		Unrealized gain on market securities	2.00
		(10.50 - 8.50 )
	b.)	The accounting treatment of increased fair value
		Unrealized gain on market securities will be reported under comprehensive income statement for OMR 1 million.
			(OMR in Millions )
		Total of Unrealized gain on market securities	3.00	( 2.00 + 1.00 )
		Sales of securities
			(OMR in Millions )
		Account Titles	Debit	Credit
		Cash	11.50
		Unrealized gain on market securities	3.00
		Market Securities		11.50
		Realized gain on sale of market securities		3.00
		At the time of sale of market securities, unrealized gain earlier recognized will be debit & realized gain on sale will be recognized as income in Income Statement for June 30th, June 2018.