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Sale of listed investments

Accounting treatment

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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.

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By johngroganjga
01st Sep 2018 06:31

Jigs wrote:

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


You have asked the same question twice now, but this is the first response you have received to either. That may be because your question is over-long and full of irrelevant (to answering the question) detail. Perhaps you are over thinking.

Your only question I think is whether on a sale of revalued investments you report the profit by reference to the revalued amount, or by reference to the original cost (and you do something else with the unrealised gain already recognised). It’s the former.

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