What is an unrealized gain or loss?
If you buy shares for $10,000 and they're now worth $12,000, you have a $2,000 unrealized gain. It only becomes realized when you sell. Until then, the value can still change.
Where they arise
- Investments in shares and bonds measured at [fair value](/glossary/fair-value)
- Foreign currency receivables, payables and bank balances
- Derivatives such as forward contracts
- Investment property under the fair value model
- Cryptocurrency holdings (treatment varies by framework)
How they're accounted for
Under IFRS 9 and related standards, unrealized gains and losses go either to:
- Profit or loss: for example, most equity investments at fair value through profit or loss, and foreign exchange differences on monetary items under IAS 21.
- Other comprehensive income (OCI): for example, equity investments designated at fair value through OCI.
Example
A Nigerian company has a $5,000 receivable from a US customer, recorded when the rate was ₦1,500 per $1 (₦7.5 million). At month-end the rate is ₦1,550, so the receivable is worth ₦7.75 million. It records an unrealized foreign exchange gain of ₦250,000.
Tax
Many tax systems tax gains only when realized, which can create [deferred tax](/glossary/accounting-for-income-taxes).