Would really appreciate it if someone could confirm or otherwise my understanding of the journal adjustments of the following scenario (for simplicity I have changed the numbers slightly but the same principle applies).
Company has 30/06 year end
In 30/06/17 it purchased some overseas listed investments. The shares purchased are 100,000 shares @ $20 per share. The exchange rate between date of purchase and 30/06/17 did not change (it was $1.20/£1 on both dates) , but the value of shares increased from $20 per share to $30 per share.
In the June 17 accounts, a fair value gain arose of £833,333 (100,000 x $10 /1.20), meaning the cost of the shares in the accounts was now £2,500,000 (100,000 x $30 /1.20)
On Dec 17 the company sold half of the shares when they were valued at $35 per share, the exchange rate on this date was now $1.25/£1). As at 30/06/18 the share were valued at $40 per share when the exchange rate was $1.27/£1.
There are two transactions to deal with, the disposal of shares and the fair value of shares @ balance sheet date.
The company received £1,400,000 for the shares (50,000 x $35 / 1.25) so the other side of this entry to the receipt of the funds should be posted to profit/loss on sale of investments
It is the disposal of the cost of the investment that I am struggling with, there is an exchange rate variance to consider and the fair value gain brought forward.
Do I use the cost b/fwd of £2million (which includes the PY fair value gain) x 50/100 = £1million creating an accounting gain on sale of investments of £400,000
The value of shares at the balance sheet date is £1,574,803 (50,000 x $40/1.27), do I then adjust the remaining cost c/fwd by £574,803 as a fair value gain (which is not taxable)
I am aware that on tax comp there is a capital gain to consider here.