A company’s records show following regarding marketable securities.
Date of purchase Jan-1
Acquisition cost $25,000
Option premium $4,000
Holding cost $8,000
Brokerage fees $2,000
Market value on Dec-31 $30,000
Calculate the amount of gain or loss on revaluation to be reported of the income statement as of December 31.
Loss of $9,000.
Loss of SI ,000.
Gain of S3,000.
Gain of $5,000.
Answer : Revaluation gain = $30,000 - ($25,000 + $2,000) = $3,000. Incidental costs should be added to acquisition cost in the calculation of revaluation gain.
Why is option premium not part of the cost? If possible, provide GAAP citation
What is are examples of holding cost of security and why it is not added to acquisition cost. If possible GAAP citation