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Sir, when the fair value of the option increases, the movement is debited to income statement. Why is this done? Is it because it is an income? but how is it an income? it should be an increased expense as the amount we have to pay increasing. right?
please help
No, when you buy an option, that’s the price you pay. When the value increases, that’s an increase in the value of the asset that you bought.
If you buy shares in a company and the value of those shares on the stock market increases, do you expect to have to pay more?
It is also similar to an upward movement of an asset, like revaluation of plant, am I right?
Thank you Sir :). But this gain as a result of increase in fair value is fictitious and it should come in the balance sheet. Why is it then in the income statement?
Isn’t it in both? When we revalue an asset, the increase goes through statement of profit or loss (actually, for asset revaluations it’s statement of comprehensive income) and the asset on the statement of financial position is increased correspondingly
It’s called “double entry”!!!
🙂 ok?
Now I got it . I seem to have forgotten the basics already (haha….)
Thanks so much Sir.
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