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Chapter 12: Q31. (page 610)

In what situation will the unrealized holding gain or loss on inventory be reported in income?

Short Answer

Expert verified

Unrealized holding gain is reported in income only when it has a qualifying fair value.

Step by step solution

01

Definition of unrealized holding gain

Unrealized holding gain means those gains that the investor gets on the investment without selling the investment.

02

Reported in income statement

The unrealized gain on the inventory is reported as income when it fulfills the criteria of the hedge accounting along with the qualifying fair value. Special hedge accounting has three criteria. The inventory needs to fulfill these criteria to report unrealized holding gain in income. Three criteria of special hedge accounting are designation, documentation, and effectiveness. If the inventory fulfills these criteria, unrealized gains are reported in income.

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