How to Record a Realized Gain on a Portfolio Company Exit
Recording the full disposal of a portfolio company investment via M&A sale, IPO secondary, or recapitalization, recognizing the realized gain as the difference between total exit proceeds and the investment's cost basis.
| Account Name | Type | Debit ($) | Credit ($) |
|---|---|---|---|
| Cash & Cash Equivalents / Escrow Receivable | Asset (+) | 15,000,000.00 | - |
| Net Unrealized Appreciation Reversal - Portfolio Company E | Income (-) | 4,000,000.00 | - |
| Investments at Cost Basis - Portfolio Company E | Asset (-) | - | 5,000,000.00 |
| Net Realized Gain on Investments | Income (+) | - | 14,000,000.00 |
💡 Accountant's Note
Upon full exit, any previously recorded unrealized appreciation on the position is reversed, the cost basis is removed, and the total economic gain (proceeds minus original cost) is recognized as a realized gain. Under ASC 946, realized and unrealized gains/losses are presented separately in the Statement of Operations. Escrow holdbacks from M&A deals should be recorded as a receivable and released upon satisfaction of conditions.
Practitioner & Systems Framework
💻 ERP Architecture
The gain/loss calculation must be done on a lot-by-lot basis (FIFO, LIFO, or specific lot identification per fund policy). Rollover equity retained in the buyer's entity must be fair valued and recorded as a new investment position rather than proceeds.
⚠️ Audit Flags
Auditors will trace exit proceeds to the closing statement and wire confirmations, recompute the realized gain from the original cost basis lots, and assess proper treatment of transaction expenses, escrow arrangements, and any retained equity rollover.
📄 Required Documentation
Signed purchase and sale agreement, final closing statement, wire transfer confirmation, escrow agreement and holdback schedule, original investment cost basis lot schedule, rollover equity valuation (if applicable).
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Expert Analysis by Qusai Ahmad
General Accountant Supervisor & IFRS Specialist
Specialized in SAP GUI automation and Middle Eastern tax compliance. Building digital tools for the next generation of finance leaders.