assume that in 2004, Company X sold AFS securities with a carrying value of $1M and unrealized loss of $0.1M for $1.5M. What is the appropriate journal entry?
2007-06-13 09:23:06 · 1 answers · asked by Jeremy S 1 in Business & Finance ➔ Other - Business & Finance
I presume that the AFS securities were acquired at a cost of $1.1m and then revalued downwards to $1m, thereby giving rise to the unrealised loss in the books of $0.1m. Now that the securities have been sold, all a/cs relating to them should be closed off.
Dr Cash at bank 1.5m
Dr Provision for unrealised loss 0.1m
Cr AFS Securities at cost 1.1m
Cr Gain on sale of AFS securities 0.5m
Another way of looking at it is this - you originally paid 1.1m, now you sold them for 1.5m so logically you made a gain of 0.4m, but remember you have previously recognised a loss of 0.1m (which with hindsight, you now know you needn't have), so now to "unrecognise" that loss of 0.1m, you have to book a gain of 0.5m instead of 0.4m.
2007-06-13 16:25:13 · answer #1 · answered by Sandy 7 · 0⤊ 0⤋