capital gains

Examples of capital gains in the following topics:

• Equity Method

  • An equity investment generally refers to the buying and holding of shares of stock by individuals and firms in anticipation of income from dividends and capital gains.
  • When the investment is in infant companies, it is referred to as venture capital investing and is generally regarded as a higher risk than investment in listed going-concern situations.

• Reporting R&D Cost

  • Expense R&D, unless items have alternative future uses, then allocate as consumed, or capitalize and depreciate as used.
  • Research is original and planned investigation undertaken with the prospect of gaining new scientific or technical knowledge and understanding.
  • A cost which cannot be deducted in the year in which it is paid or incurred must be capitalized.
  • The general rule is that if the acquired property's useful life is longer than the taxable year, then the cost must be capitalized.
  • The capital expenditure costs are then amortized or depreciated over the life of the asset.

• Assessing Fair Value

  • Realized holding gain (realized through sale) increase in fair value of an asset while held.
  • Transaction costs, such as brokerage fees, included in acquisition cost and capitalized, or immediately expensed.
  • Unrealized holding gains, defined as the difference between the existing balance in the
  • Transaction costs, such as brokerage fees, may be included in acquisition cost and capitalized, or immediately expensed.
  • Holding gains, defined as the difference between the existing balance in the investment

• Gain Contingencies

  • Gain contingencies, or possible occurrences of a gain on a claim or obligation involving the entity, are reported when realized (earned).
  • If a specific event that can cause the gain occurs, and the gain is realized, then the gain is disclosed .
  • This constraint also encourages the omission of revenues and gains until those gains are realized.
  • Thus, for a gain contingency, only a realized gain is accrued for and disclosed on the income statement.
  • However these gains should only be accrued when the gain is realized.

• Accounting Methodologies: Amortized Cost, Fair Value, and Equity

  • subjective factors such as risk characteristics, cost of and return on capital and individually perceived utility.
  • These securities are reported at fair value, with unrealized gains and losses included in earnings.
  • These securities are reported at fair value, with unrealized gains and losses excluded from earnings and reported in a separate component of shareholders' equity (Other Comprehensive Income).

• Key Considerations for the Statement of Cash Flows

  • The statement shows historical changes in cash and cash equivalents rather than working capital.
  • Securities that are held for trade are generally investments that a business holds for a very short period of time with the intent to sell for a quick gain.
  • Financing activities - activities that result in changes in the size and composition of the equity capital and borrowings of the enterprise.
  • Transactions include cash received by the company issuing its own capital stock and bonds, as well as any other short- or long-term borrowing it may do.

• Working Capital Management Analysis

  • Along with fixed assets, such as property, plant, and equipment, working capital is considered a part of operating capital.
  • If current assets are less than current liabilities, an entity has a working capital deficiency, also called a working capital deficit.
  • Decisions relating to working capital and short term financing are referred to as working capital management.
  • Profitability can be evaluated by looking at return on capital (ROC).
  • Identify working capital and discuss how a company would use it

• Accounting for R&D Activity

  • Although Allergan (a biotech company) tops the spending table with 43.4% investment, anything over 15% is remarkable and usually gains a reputation for being a high technology company.
  • Prior to 1975, businesses often capitalized research and development costs as intangible assets when future benefits were expected from their incurrence.
  • Other companies capitalized those costs that related to proven products and expensed the rest as incurred.

• Introduction to the Retained Earning Statement

  • The Statement of Shareholder's Equity shows the inflows and outflows of capital, including treasury stock purchases, employee stock options and secondary equity issuance.
  • Comprehensive income is the sum of net income and other items that must bypass the income statement because they have not been realized, including items like an unrealized holding gain or loss from available for sale securities and foreign currency translation gains or losses.

• Preparation of the Income Statement

  • Depreciation / Amortization is the charge with respect to fixed assets/intangible assets that have been capitalized on the balance sheet for a specific (accounting) period.
  • Other revenues or gains include those from other than primary business activities (e.g., rent, income from patents).
  • They also includes unusual gains that are either unusual or infrequent, but not both (e.g., gains from the sale of securities or gain from disposal of fixed assets)