The capital gains that an entity has not realized as it did not sell or dispose of its capital asset(s)- that have already increased in value to a level exceeding the original acquisition/ purchase costs for the respective asset(s). Examples of capital assets include a stock position or a commodity (e.g., gold), that has not been sold for money (monetary assets). Realization of capital gains implies derecognition of respective assets (or in other words, closure of a position or an act of exit).
While an asset may be held by an entity and presented on its balance sheet at a value far above cost, any gains in value, while the asset is still being held, are considered paper gains– that is, the gains remain unrealized, and the asset is carried at fair value. If an asset is sold for a price exceeding its cost, a realized gain results. And if selling an asset results in a loss, an entity incurs a realized loss.
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