Fair Value Gain on Investments
Increase in market value of investments held for trading, booked to profit even though not yet sold. On the Profit and Loss statement.
In detail
Investments held for trading, such as mutual fund units or shares bought to sell, are carried at market value, and the increase at each period end is credited here even though nothing has been sold. The matching debit goes to Investments at Fair Value through Profit or Loss. A fall in value is a debit to the same ledger. Unlike the OCI route, these gains land in profit. The IRD taxes the gain only on actual sale, where the broker withholds advance tax of 7.5 percent, held over 365 days, or 10 percent, so the book gain and the taxable gain differ. Marking to market needs the NEPSE closing price or the fund's published NAV.
Formula
Fair value gain = Closing market value - Carrying value before remeasurement
Accounting entry
| Account | Debit | Credit |
|---|---|---|
| Investments at Fair Value through Profit or Loss | Rs 15,000 | |
| Fair Value Gain on Investments | Rs 15,000 |
How to record it in BRAccount
- 01At Ashadh end, list each holding with its NEPSE closing price or NAV.
- 02Go to Invoicing > Journal Entry > New dated the year end.
- 03Debit Investments at Fair Value through Profit or Loss and credit this ledger with the increase; reverse for a fall.
- 04Submit. The entry below posts.
- 05On sale, post the proceeds against the investment ledger and record the broker's advance tax in TDS Receivable.
When to use it
Post by Journal Entry at year end when revaluing Investments at Fair Value through Profit or Loss.
Example from the demo books
Dr Investments at Fair Value through Profit or Loss Rs 15,000, Cr Fair Value Gain on Investments Rs 15,000 for mutual fund units up at Ashadh end.