equity analyst's adjustment sales, move, available, increase, security

smartpants

if target company has available for sales security, the un realized gain/loass in equity. as a analyst, do I need to adjust and move this unrealized gain to net income(reduce equity and increase NI?)

trogulj

If it’s adjusted that way it would be another example of clean-surplus violation in which (un)realized GL being only in NI but not in Equity.
Sticking to the basis, clean-surplus relationship mean:
End BV = Begin BV + NI - Div
In case of AFS security, End BD has +unrealized GL, but NI doesnot
– unrealized GL only appears in the left side of the equation, but not in the left side
– clean surplus relationship is violated (ie: no more equation)
Hence, we need to + unrealized GL in the left side of the equation under NI

Daniel1985

Thanks. but I think Equity should be adjusted, reason below:
if unrealized AFS gain 20, CTA: is 20(part of equity)
as a anlayst, CTA should be adjust to zero, thus equity reduce 20 and NI increase 20
if you only adjust NI without CTA, how you debit and credit, it can’t be one side.

Nishant1

Adjust the NI only (ie: the unrealized GL now is also an item in Income statement)
No need to adjust for equity as it’s already correct.
The way to think of making adjustment, per my understanding, is to adjust the portion (either in Balance sheet or Income statement) whenever it’s wrong. If it’s already correct, no need to do anything.