Corbit Company has marketable equity securities that have a fair market value at
ID: 340857 • Letter: C
Question
Corbit Company has marketable equity securities that have a fair market value at year-end is $13,440 below their cost. Give the required entry if: a. The securities are current assets classified as trading securities. b. The securities are noncurrent assets classified as available-for-sale securities, and the loss is considered to be temporary is considered to be permanent. State where each of the accounts debited in a, b, and e would be reported in the financial c. The securities are noncurrent assets classified as available-for-sale securities, and the loss statements.Explanation / Answer
Unrealised loss on Trading Securities......Dr
To Trading Securities
(Being the unrealised loss recognised in trading securities, due to fall in market prices)
Unrealised loss on Available-for-sale Securitiees............Dr
To Available-for-Sale Securities
(Being Unrealised loss is recognised for fall in the market prices of securities)
Realised loss on Available-for-salel Securities.......Dr
To Available for sale securities
(Being unrealised loss recorded due to fall in market prices of available-for-sale securities )
Explanations:
(a) Since the securities are considered trading securities (current asset), any loss in the value of the securities will be recorded in the profit and loss account.
(b) Since the securities are considered available-for-sale securities, and the loss is temporary. The realised loss can be deducted from the net income in the income statement.
(c) Since the securities are classified as available-for-sale securities (AFS), and the loss is permanent, it will not be considered as current losss, and hence the loss will be adjusted in the Paid-up Capital.
Seriel No. Particulars Debit Amount Credit Amount (a)Unrealised loss on Trading Securities......Dr
To Trading Securities
(Being the unrealised loss recognised in trading securities, due to fall in market prices)
13,440 13,440 (b)Unrealised loss on Available-for-sale Securitiees............Dr
To Available-for-Sale Securities
(Being Unrealised loss is recognised for fall in the market prices of securities)
13,440 13,440 (c)Realised loss on Available-for-salel Securities.......Dr
To Available for sale securities
(Being unrealised loss recorded due to fall in market prices of available-for-sale securities )
13,440 13,440