zubairs
Trading Securities – always IS before taxes. be it unrealised or Realised
AFS – Unrealized – OCI … Realized is IS
Remember if in Y1 you had Unrealized and then you sale in Y2.
In Y2 You need to remove the Unrealized from OCI that you had put in Y1 and reclassify to IS.
In addition to the realized G/L you will have in Y2 resulting from the sale of the Asset.
Below is the long explanation from a Wiley question.
Reclassification adjustments. As unrealized gains (losses) recorded and reported in other comprehensive income for the current or prior periods are later realized, they are recognized and reported in net income. To avoid double counting it is necessary to reverse the unrealized amounts that have been recognized.
Reclassification adjustments along with the associated effects shall be presented in the statement which presents the components of net income and other comprehensive income.
Assume that an available-for-sale security was sold April 1, year 2, for a $45 gain. Assume that Totman did not elect the fair value option. There was $30 of unrealized gain that arose in years prior to year 2 and is in accumulated other comprehensive income. The other $15 unrealized gain was reported in the first quarter statements and is part of the $179 reported below under other comprehensive income for year 2.
The reclassification adjustment to avoid double counting is $45 less a tax effect of $10, or $35 net. Since the $45 was realized in the current period, a realized gain of $45 was reported in the income from continuing operations under other revenues and gains above before provisions for income taxes of $598. The $10 of income tax on the $45 is reported as part of provision for income taxes in the current portion of income tax expense of $189. Recall that all items reported above the provision for income taxes are reported βgross,β not net of taxes as in the case of items such as discontinued operations. Also, note the tax effects reported under other comprehensive income are deferred since the unrealized components are not recognized for tax purposes until realized.
Balance sheet. Accumulated other comprehensive income is reported in the stockholdersβ equity section of the balance sheet. When an entity has components of other comprehensive income, the total of these is closed to the balance sheet account entitled accumulated other comprehensive income, not retained earnings. In the case above, the other comprehensive income of $170 for the period would need to be closed to accumulated other comprehensive income, not retained earnings. The net loss is closed to retained earnings
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