Question

Unrealized gains or losses occur when

            A.        a company adjusts assets from cost value to book value.

            B.        a company adjusts assets from fair value to cost value.

            C.        a company adjusts assets from book value to fair value.

            D.        a company adjusts assets from fair value to book value.

Answer 1

The correct answer is C. a company adjusts assets from book value to fair value.

Unrealised gain or loss is the increase or decrease in the value of an asset held by the company. It is just an increase or decrease in the paper value of the asset because, it is the expected realisable value of the asset if it is sold in the market. It is the gain or loss which can be earned when the original sale of the asset is made. Unrealised gain or loss arises when the book value of the asset is compared with fair value. When the asset is held in the business at its fair value (at a cost higher or lower than the book value), it is considered as unrealized gain or loss.