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Unrealized Gains (Losses) on Balance Sheeet | Examples | Journal Entries - YouTube
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we have a topic which is unrealized
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gains well unrealized gains are like you
know notional things that's that's
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happening here and there so what exactly
this is all about okay there's an
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extract here of the fiscally and net
earnings in purity non-controlling
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interest and in the other comprehensive
income there are details for unrealized
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holdings what exactly this is all about
let's try and understand see unrealized
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gains and losses is like you know
increase or you can see it decrease in
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the value of the asset you know that is
not yet sold for cash and it is also
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called you know the people profit it's a
paper profit or you know it can be
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called as the people loss
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so unrealized gains and losses can be
thought as in no money on paper which
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the company expects to realize by
selling the asset in the future so when
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the company sells the asset it realizes
the gains and pays the taxes on such
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profits there's a portfolio valuations
mutual funds anyways and some tax
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policies they depend on the unrealized
gains and losses which are also called
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as mark
to market
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let's calculate the unrealized gains and
losses with the help of an example
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unrealized gains example number one
let's say there is a company called XYZ
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as an investment
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of let's say $10,000 in stocks which it
holes for the trading purposes but the
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value of the three stocks let's say has
increased to $25,000 and the company
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could record 15,000 as what we call as
the unrealized
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again on this position without actually
selling of the securities so this will
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only be paper profit
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and the company will
not be liable to be any sort of what we
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call as taxes for such recordings and
for such a recorded unrealized gains so
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however we he you know he sells
this positions let's say for
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30,000 later in the year or next year
and it would it would record a realized
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gain of let's say $20,000 in the net income and he's
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liable to pay taxes on such gains so
from the above example we can say that
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you know unrealized gains is the
difference between the value of the
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investment now and the investment done
by the person in the past let's take
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another example example number two let's
take another example a person let's say
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ABC has bought 500 stocks of let's say
three each with the original investment
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value of 1500 so he paid a
brokerage of let's say a $10 on the
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purchase of these stocks and the current
value of the stock is standing at $7
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dollars so here the total value of the
investment is going to be it's 3
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into 1500 that's
4,500 sorry-sorry it's gonna be
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3,500 so the unrealized gains is
gonna be 3,500 less
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1500 that's gonna be 2000 precise the person can subtract
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the brokerage paid on the stocks and say
the unrealized gains will be
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2000 less 10 that's 1990
the above examples were from in order to
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calculate the unrealized gains and
losses now let's take in real unrealized
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loss or in exempt as a dot-com company
bubbled created a lot of unrealized with
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the dot-com bubble if you realize the
dot-com bubble it had created a massive
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unrealized gains or the wealth and that
it evaporated like crash happened during
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the dot-com boom lot of stock options
you know RS used the e restricted stock
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units were given to the employees as a
reward in incentives and it's so it's so
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many employees turning as millionaires
in no time but they could not realize
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their gains due to restrictions to hold
them for a time period in this dot-com
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bubble crashed and all the unrealized
wealth evaporated now let's understand the
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accounting portion of the unrealized
gains and losses so the accounting treatment
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I mean for the unrealized gains and
losses depends on whether these
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securities are classified into three
types first whether it is held to
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maturity securities well unrealized
gains you know and losses on securities
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held to maturity are not recognized in
the financial statement and such
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securities do not impact the financial
statement like the balance sheet the
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income statement and the CFS that is the
cash flow statement right and many
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companies may value the security is at
market value and may choose to disclose
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it in the footnotes of the financial
statement however if the market value is
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not disclosed held to the maturity
securities they reported at the amortized
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costs second
trading securities securities that have
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been held as the trading securities they
are reported at what we call as the fair
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value in the financial statement and the
unrealized gains or unrealized losses
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they are recognized on the statement or
a statement and the impact of the net
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income of the companies so although the
securities have not been sold to realize
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the profits gains they increase
the income and does in order increase in
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the EPS that is the earning per share
and the retained earnings there is no
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impact on such gains on such cash flow
state third we have available for sale
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securities
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now available for sale security is also
reported at what we call as the fair
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value however you know the accounting
for such securities that differ or Lord
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they differ from the trading securities
so due to the fair treatment for the
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ability able for the sale securities
unrealized gains or unrealized losses
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are included in the balance sheet on the
asset side however I know such gains and
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not impact the what we call as the net
income of the company so the unrealized
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gains on such securities are not really
recognized in the net income till they
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are sold and the profit is realized
but the unrealized gains they are
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reported under the shareholders equity
as the accumulated
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although
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comprehensive securities now the
unrealized gains and losses on the
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income statement and balance sheet let's
understand see the accounting treatment
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for various types of securities and the
impact on the financial statement things
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like this I'm gonna take you to the
tabular statement but there are type of
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security it is valued at generally a
motorized cost there is no impact on the
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balance sheet on income statement and
cash flow again there is no impact for
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for trading securities they are valued
at fair value on the balance sheet and
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it is recorded the unrealized gains and
recover or losses are recognized on the
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balance sheet and same with the income
statement they are recognized in the P&L
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and the impact on the net income in CFS
there'll be no impact for the available for
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sale it will be recorded at again the
fair value and gains and losses will be
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recognized in balance sheets same there
there won't be any difference but over
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here the unrealized losses are not
recognized in the penal and there'll be
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no impact on the CFS right so this were
the tabular thing that had to make you
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understand now there are important s--
of unrealized gains losses like it is
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good to know that you any less gains on
the portfolio but it helps to track the
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performance of the portfolio now
although they are only what we call on
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paper profits but they don't they give a
good estimate of what actual profit
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would be in the near future if the
positions are sold second the unrealized
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gains or losses will help in the what we
call as the tax planning and taxes are
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paid on the Unruh on the realized gains
so does by knowing the unrealized gains
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they come he can focus the amount of the
tax to be paid if the if they sell the
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securities third the investors they can
plan when to sell the security and to
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realize his gains now holding a security
for a longer time may reduce the tax
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implication and that would be treated as
what we call as the long-term capital
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gains so does the investor can can plan
and sell the security after one year of
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his purchase and then selling in the
same year to reduce the tax implication
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finally on the concluding end you can
say that you know the unrealized gain is
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an increase in the value of the
investment due to the increase in the
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market value of the calculated because
that is the fair value minus the market
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value and such a gain is recorded in the
balance sheet before the asset has been
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actually been sold and thus the gains
are called as the unrealized one because
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no cash transaction actually happened
and first securities the
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except for the trading securities the
unrealized gains do not impact the move
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so so-called the net income and the
gains are realized only after selling
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the asset for cash because it is only
when the transaction has materialized
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that's it for this particular topic if
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