Proceeds of the sale of Investments

25/07/2020 1 By indiafreenotes

When a company sells an investment, it results in a gain or loss which is recognized in income statement. A gain on sale of investment arises when the (disposal) value of an investment exceeds its cost. Similarly, a capital loss is when the value of investment drops below its cost.

Accounting treatment of a disposal of investment depends on:

  • The nature of the investment i.e. whether it is a share of common stock, preferred stock, a bond, etc.,
  • The extent of the investment i.e. the percentage holding, and
  • The initial recognition and continuing accounting of the investment.

Investments in shares of common stock are accounted for using either the fair value through profit and loss, fair value through other comprehensive income, equity method or consolidation depending on the extent of ownership.