available-for-sale question

Curriculum vol 2 p.15 Why do we have (460) in 20X2? My calculation goes like this: Dividends: 70 x 2 = \$140 Realized G/L: 30 x (60 - 70) = -\$300 Total = -\$160 However, it appears that realized G/L was calculated as 30 x (60 - 80) = -\$600 so it arrives at \$460 (-\$600 + \$140) Why don’t we use the carrying book value to calculate realized G/L (as in trading method)? Thanks TK

realized gains are always taken from original book cost. even for trading securities. then you add divs and interest and the change in mva to get the total return. .

Thanks for the quick response. On p16 table footnote (a), it clearly has realized G/L calculated from the carrying book value than original book cost for Trading method. What am I missing? 30 x (60 - 70) = -\$300 loss on sale 70 x (80 - 70) = \$700 unrealized gain total \$400

i’ll take a closer look but it seems like an error. that would mean the cost basis changes at the beginning of every year? that’s absurd. any fsa specialists want to chime in… i could be blowing smoke.

You don’t use the carrying book value because those “unrecognized losses” have not been recognized…so they get transferred from CTA to Net income and is done to keep true to clean accounting That is for Available for sale In trading securities the unrealized gain flows through the income statement. That way is is TRULY recognized and that is why it is calcualted from carrying value-those previous movements have been recognized

miker, your explanation on the trading securities makes sense. thanks for that.

Ah ha… thanks

you get the same answer (for total return) doing it the other way as well. it took me 20 posts to figure that out.

haha no prob dude

Your explanation is really helpful how about unrealized GL, is it truly just the change in MVA?

sorry that was a dumb question, i figured it out