Accounting for profit or loss of a stock

[PorkPie]

Hi there

I have a question about accounting for shares that my company owns in other companies.

If I've bought 1000 shares of ABCCorp for £1000 this year, and sell them next year for £500, how do I account for this on the balance sheet?

This year's balance sheet:
Cash: -£1000
Inventory? +£1000 ABC Corp?

Next year's balance sheet:
Cash: +£500?
Inventory?
Profit and Loss?



thanks!

[Martin at NixonWilliams]

Hi there

I have a question about accounting for shares that my company owns in other companies.

If I've bought 1000 shares of ABCCorp for £1000 this year, and sell them next year for £500, how do I account for this on the balance sheet?

This year's balance sheet:
Cash: -£1000
Inventory? +£1000 ABC Corp?

Next year's balance sheet:
Cash: +£500?
Inventory?
Profit and Loss?



thanks!

Broadly speaking your accounting enteries would be as follows:

Purchase:
Debit Investments £1,000
Credit Bank £1,000

Sale:
Credit Investments £1,000
Debit Bank £500
Debit Loss on investment £500 (not allowable against trading profits normally).

I hope this helps, I'm sure your accountant would be able to run through this is more detail if you have one.

Martin

[PorkPie]

Thanks Martin. What does "not allowable against trading profits normally" mean?

If the company invested, the company lost money, wouldn't it go against the company's profit and loss?

[ASB]

Thanks Martin. What does "not allowable against trading profits normally" mean?

If the company invested, the company lost money, wouldn't it go against the company's profit and loss?

Yes. But not against CT. For example:-

Sales 50,000

Salaries 10,000
Expenses 5,000
Loss on investment 5,000
CT (on 35,000) 7,000

Retained profit 23,000

[PorkPie]

Yes. But not against CT. For example:-

Sales 50,000

Salaries 10,000
Expenses 5,000
Loss on investment 5,000
CT (on 35,000) 7,000

Retained profit 23,000

Got you. Thanks.

[Martin at NixonWilliams]

Yes. But not against CT. For example:-

Sales 50,000

Salaries 10,000
Expenses 5,000
Loss on investment 5,000
CT (on 35,000) 7,000

Retained profit 23,000

Just as ASB said, although the loss would be carried forward as a capital loss and could be offset against future capital gains (if there were any).