Fair Value through OCI Reserve
Unrealised gains or losses on long-term shares held at fair value, kept in equity until sold. On the Balance Sheet.
In detail
Some investments, typically shares bought to hold rather than to trade, are measured at fair value with the gains and losses taken to other comprehensive income, OCI, instead of profit. The change in value each year is posted to the investment ledger and this reserve, so the Balance Sheet shows the current market price while the Profit and Loss is untouched by stock market swings. Dividends received still go to income. When the shares are sold, the reserve is transferred to Retained Earnings. A company trading shares actively should instead use Investments at Fair Value through Profit or Loss and the Fair Value Gain account. The OCI choice is made when the shares are bought and cannot be changed later.
Formula
Reserve movement for the year = Closing market value - Opening market value of FVOCI investments
Accounting entry
| Account | Debit | Credit |
|---|---|---|
| Investments at Fair Value through OCI | Rs 20,000 | |
| Fair Value through OCI Reserve | Rs 20,000 |
How to record it in BRAccount
- 01At Ashadh end, take the NEPSE closing price for each holding and compute the change since the last valuation.
- 02Go to Invoicing > Journal Entry > New dated the year end.
- 03For a gain, debit Investments at Fair Value through OCI and credit this reserve; reverse for a loss.
- 04Submit. The entry below posts.
- 05On sale, post the proceeds against the investment ledger and move the reserve to Retained Earnings.
When to use it
Post by Journal Entry at year end when revaluing Investments at Fair Value through OCI to the NEPSE closing price.
Example from the demo books
Dr Investments at Fair Value through OCI Rs 20,000, Cr Fair Value through OCI Reserve Rs 20,000 for hydropower shares up at Ashadh end.