Accounting treatment for Increase in Equity-share Mkt. Price at FY- Closing.

18 February 2009 7,973 views 8 Comments

Dear All,

This is regarding, i have an investment in Equity shares (100,000 @16) of listed company, where as at 31st Dec.2008 Mkt. Price for these shares was 31 per share. i want to know this increase in share price
how i will realise as at closing of FY-2008, by which accounts and in which part of P&L a/c i will show it.

Thanks & Regards,

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  • admin (author) said:

    Message from other members:


    this depends on how you classify the share. According toIAS 39 you can do this as either “Available for Sale (AFS)” or “Fair value through profit & loss(FVPL)”. Held to maturity is not an option for equity instruments as there is no maturity. I assume the shares do not represent a significant amount of the company as it should otherwise be treated as an investment in an associate.

    FVPL should be chosen if your company is actively trading in these shares on a daily basis. Otherwise AFS is the best option. Please be aware that you can not reclassify the investment out of FVPL once you have classified it as such. You might be inclined to do so to show the increase in value i P&L, but you need to show possible future losses in P&L as well then.

    Movements in AFS instruments go through equity (or other comprehensive income as it is now called) and not via P&L.
    A possible journal would be:
    Financial instruments AFS 1500000 (31-16*1000000)
    @ Revaluation AFS instruments (equity) (1500000)

    Hope this helps,


  • asadlarik3 said:

    excellent reply!

    i have one quesition

    for FVPL i think the entry for recognizing loss is

    provision for dimunition in value of shares (Dr)
    P&l (Cr)

    but what will be the entries in a case similar to the questioner`s scenario that is first appreciation in value?

  • admin (author) said:

    A comment from an other member


    Thanks for your reply, i am satisfied with your reply and i will be
    quite happy, if i will get ISA39 in detail.

  • Ntsakisi said:

    Hi all,

    I have a question.

    My understanding of IAS 21 is that Share capital( invested) is considered a non-monetary item.
    In a situation where this equity injection was in a foreign curreny. You need to transalate the equity at the spot rate at transaction date(day 1).

    However at reporting date, do you leave the equity at the translated value at day 1 or do you re-translate and take the result ot equity?

    Further is the treatment the same for share premium?

  • zohaib said:

    Hi Nsakisi,

    Would you please clarify if accounting treatment is requested from company’s point of view or from investor’ point of view buying those shares.


    Zohaib Durrani.

  • zohaib said:

    Hi Nsakisi,

    If company issues shares in foreign currency then day 1 rate would be used to record the transaction for both share capital and share premium. And subsequent exchange rate movement would not be accounted for as company has nothing to do with foreign exchange movement going forward. However, if functional currency of the company is the one in which shares are issued then reporting date rate would be relevant. And changes would effect reserves while share capital and share premium will remain blocked. you may refer to IAS 21 for determining functional currency criteria.

  • Ntsakisi said:

    Hi all,

    Thank you for your response. The accounting treatment is requested from the Company’s point of view. I concur that upon issue the shares in foreign currency would be translated by the Day 1 rate, however what do you do upon reporting date?


  • zohaib said:

    Hi Ntsakisi,

    Amount realised from share issue at a particular rate is a hard fact and same would be split between Share capital and share premium.
    Company would use original exchange rate for all reporting periods to come as proceeds are against issue of equity instrument.

    Should you require further clarification then please feel free to ask.


    Zohaib Durrani.

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