Unrealized loss and gains

Hi Prashant,

Mostly unrealised profits are deducted from the Profit & Loss a/c and balance profits made to reflect...Usually in if goods are invoiced more than the markup cost or with a profit on cost between holding and subsidiary companies, in such circumstances stock reserve a/c is created and from the P&L a/c of the profit making company such share of profit over cost of the selling company is deducted and balance shown in Balance Sheet... In branch and Departmental a/cs stock reserve entries are passed. In consolidation of financial statements no such entries are passed... Hope u could understand....

The Entry will be:-
 

Profit & loss A/c      Dr

     To Unrealised reserve a/c

The balance of unrealise reserve is shown in balance sheet sunstracting relative item.

In Liability side under which head it will be shown?

unrealised gain is a gain against which no consideration will be realised. e.g. A Co. is the Holding Co. of B Co. A Co. sold goods to B Co. for Rs. 100000 at a 25% profit on cost. the goods remained unsold at the date of the balance sheet. now at the time of preparing consolidated financial statement the stock of B Co. will be merged with that of A Co. But that stock will include the profit made by A Ltd. that profit can not be realised bcause in the CFS that stock belongs to A Co. hence the portion of the unrealised gain shall have to be eliminated by passing the following entry:

P/L a/c .....Dr.     Rs. 20000 (Rs. 100000/5)

  To, Stock a/c    Rs. 20000