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When we buy equity shares and classify it through OCI , we make an irrevocable decision that it cannot be classified to PNL subsequently,
i have few things to clarify, like is pnl and and retained earning the same thing ? (please read the following example to understand)
year 1 – we bought the shares – cr cash 1000 , dr investment 1000
year 2 – the fair value of shares increased by 200 , CR oci (pnl statement) , dr investment 200
year 3 – the investment balance in balance sheet is 1200 , and OCI (SFCIE) has an opening balance of 200
year 4 – we decide to sell the shares , so what is the accounting entry step by step ?
the cash received is 2000 , the fv of the shares a month before the sale was 1500Year 4
Dr FA Cr OCI 300
Dr Cash 2000 Cr FA 1500 Cr OCI 500Finished!
Don’t go banging on about reserve transfers – directors only interested in what impacts P&L.
🙂
so in year 4
OCI in (pNL) is Credited by 800 ( 300 from fair value gain , and 500 from from the sale coz of excess cash received)
dr cash of 2000
and the financial asset is credited by 1500 , which makes it value nil now.
so now then what happens now ? in the statement of changes in equity there is an OCI balance of 1000 ( 200 relates to year 2 gain , 300 relates to year 4 gain , and 500 is the excess cash received in year 4 as well )
what happens to this value of 1000 in OCI reserve in (SOCIE) At the end of year 4 and also beginning of year 5 ?
when the standard says its not classified to Pnl , …. but what happens to OCI reserve balance in year 5 ? does it stay there forever or what is to be done with it ?
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