Example: Assume the following information for the Novak Corporation. 2006 2007 Dividends $190 $220 Interest 400 520 Realized gains (losses) 1,200 2,460 Investment in securities (at cost) 35,700 72,400 Investment in securities (at FMV) 38,200 76,800 Compute the MVA for 2006: $38,200 − $35,700 = $2,500 Compute the MVA for 2007: $76,800 − $72,400 = $4,400 Compute the change in MVA for 2007: $4,400 − $2,500 = $1,900 = unrealized gains I’m just curious, why isn’t the 2007 unrealized gains = 4,400? i.e. why is it calculated as the “Change” for the two years?
Imagine a case where you bought some shares for $1000. One year later, they are worth $2000, and stay at that value indefinitely. If we put $1000 in the accounts every year, we would be counting multiple times that one off gain. What we actually want to measure is the change in FMV *that year*.
oh i see… good point… so if we report 4,400 in 2007, then we’ll be counting 2,500 twice. Thanks Chrismaths.