Investments at Fair Value through Profit or Loss
Investments held for trading, revalued at market price with gains and losses going straight to Profit and Loss. On the Balance Sheet.
In detail
Investments at Fair Value through Profit or Loss holds shares, mutual fund units and similar instruments bought to trade or that do not fit the other two measurement categories. They are revalued to market at every reporting date and the gain or loss goes straight to Fair Value Gain on Investments or to an expense, so trading swings show up in profit. Dividends and realised gains are income; gains on shares held up to 365 days attract 10 percent advance tax and longer holdings 7.5 percent, collected by the broker. A business that dabbles in the stock market with spare cash keeps the holdings here; the balance is the current market value, not cost, after each revaluation.
Formula
Carrying value = Market price x Units held; Gain or loss for the period = Carrying value - Previous carrying value, posted to profit.
Accounting entry
| Account | Debit | Credit |
|---|---|---|
| Investments at Fair Value through Profit or Loss | Rs 3,00,000 | |
| Bank Account (rename me) | Rs 3,00,000 |
How to record it in BRAccount
- 01Go to Invoicing > Journal Entry > New dated the purchase; debit this account, credit the bank.
- 02Submit. The entry above posts for mutual fund units bought to trade.
- 03At each period end, post the change in market value to this account against Fair Value Gain on Investments.
- 04On sale, debit the bank for net proceeds and TDS Receivable for advance tax; credit this account and the gain.
- 05Open the ledger from the chart; its balance should equal the broker statement's market value.
When to use it
Post by Journal Entry when bought and at each revaluation. Gains go to Fair Value Gain on Investments.
Example from the demo books
Dr Investments at Fair Value through Profit or Loss Rs 3,00,000, Cr Bank Account Rs 3,00,000 for mutual fund units bought to trade.