Holding gains are generally defined as increases in the

replacement cost The term replacement cost or replacement value refers to the amount that an entity would have to pay to replace an asset at the present time, according to its current worth. In the insurance industry, "replacement cost" or "replacement cost valu ...

s of the

asset In financial accounting, an asset is any resource owned or controlled by a business or an economic entity. It is anything (tangible or intangible) that can be used to produce positive economic value. Assets represent value of ownership that can ...

s held during a given period. Holding gains and losses accrue to the owners of assets and liabilities purely as a result of holding the assets or liabilities over time, without transforming them in any way. For example, if a company holds bottles of wine in its inventory and that specific wine becomes more expensive on the market, the replacement cost of the wine in the inventory increases as it has become more expensive for the company to replace its current stock of wine. Thus, by merely holding the wine in the inventory, the assets of the company have risen in value. There are different types of holding gains and the types depend on the accounting system the company uses or may use. Holding gains are most frequently used in

inflation In economics, inflation is an increase in the general price level of goods and services in an economy. When the general price level rises, each unit of currency buys fewer goods and services; consequently, inflation corresponds to a reduct ...

accounting and

income Income is the consumption and saving opportunity gained by an entity within a specified timeframe, which is generally expressed in monetary terms. Income is difficult to define conceptually and the definition may be different across fields. Fo ...

measurement. For instance holding gains or losses can result from

depreciation In accountancy, depreciation is a term that refers to two aspects of the same concept: first, the actual decrease of fair value of an asset, such as the decrease in value of factory equipment each year as it is used and wear, and second, the ...

, stock, gearing adjustments or monetary

working capital Working capital (WC) is a financial metric which represents operating liquidity available to a business, organisation, or other entity, including governmental entities. Along with fixed assets such as plant and equipment, working capital is consi ...

adjustments. Holding gains can be realized (e.g., sold goods) or unrealized (e.g. stock).

References

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References

See also