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Homework answers / question archive / At the beginning of 2021, Gala company purchased equity securities to 5 points held for trading for P5,000,000
At the beginning of 2021, Gala company purchased equity securities to 5 points held for trading for P5,000,000. The entity also paid commission, taxes and other transaction costs amounting to P200,000. The securities had a market value of P5,500,000 at year-end. No securities were sold during the year. In the year 2022, 60% of the investments were sold. Proceeds from the sale amounted to P3,450,000 which is net of transaction costs amounting to P125,000. On December 31, 2022, the fair value of the investment is 40% more than the carrying amount at the end of 2021. What total gain/loss on trading securities should be reported in the income statement for 2022? Answer should be presented as: LOSS 123456 or GAIN 123456
Total to be reported in Income Statement in 2022 is Gain P 1,030,000
Please see solutions below.
*Transaction cost are expensed out and not included in the carrying value in Financial Assets FVPL (trading) Carrying Value, December 31, 2021* 5,500,000.00 Proceeds from sale of Financial Assets P 3,450,000.00 Carrying Value of assets sold (P 5.5M x 60%) (3,300,000.00) Gain on sale of financial assets** P 150,000.00 **Already net of transaction costs Carrying Value, December 31, 2021 P 5,500,000.00 multiply by % of assets still not sold 40% Carrying Value, assets still not sold 2,200,000.00 multiply by increase in value 40% Increase in value of assets not yet sold P 880,000.00 Gain on sale of financial assets** P 150,000.00 Increase in value of assets not yet sold 880,000.00 Total Gain to be reported in Income Statement P 1,030,000.00
