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.
Answer options:
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.
My questions:
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Why is option premium not part of the cost? If possible, provide GAAP citation
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What is are examples of holding cost of security and why it is not added to acquisition cost. If possible GAAP citation