Definition: A holding gain is the value or dollar amount an asset has increased since the time it was purchased. In other words, a holding gain is the appreciation of an asset since it was originally purchased. The longer a company holds an appreciating asset, the larger the holding gain will be.
What Does Holding Gain Mean?
Since holding gains are unrealized, they are considered purely theoretical. Holding gains are not recorded on the balance sheet because they haven’t actually occurred yet. A holding gain is simply the different between the fair market value of an asset and the historical cost of the asset. Since the holding gain has not been realized, it is not recorded on the balance sheet.
Holding gains are common with companies that own land and buildings. For instance, a company might buy a piece a property for $50,000 in 1990. Today the piece of property is worth $250,000. The $200,000 holding gain for this piece of property is not recorded on the balance sheet because it could change in the future. Instead, the company reports the property at its historical cost of $50,000 on the balance.
If the company sells the property, it will realize a gain of $200,000 and report it on the income statement. The company would report this gain as income and would also have to report it for tax purposes. After the property is sold, the historical cost and any accumulated depreciation is removed from the balance sheet. The gain from the sale is closed to the retained earns account at the end of the year and is also reported on the balance sheet.