What is the journal entry for mark-to-market (MTM) gain?

For FVTPL investments: Dr Investment A/c (at current fair value) and Cr Unrealised Gain on Investment A/c (P&L). For FVTOCI investments: Dr Investment A/c and Cr OCI — Unrealised Gain on Investment A/c (Equity / Revaluation Reserve). The gain goes to P&L for FVTPL and to Other Comprehensive Income for FVTOCI.

What is mark-to-market (MTM) accounting for investments?

Mark-to-market (MTM) accounting requires revaluing investments to their current market price (fair value) at each reporting date. The difference between the current fair value and the previous carrying value is an MTM gain (if value increased) or MTM loss (if value decreased). Under Ind AS 109, this is mandatory for financial instruments classified as FVTPL or FVTOCI.

What is the difference between MTM gain in FVTPL vs FVTOCI?

For FVTPL investments, MTM gain is credited to Profit & Loss Account — it increases reported net profit and affects EPS. For FVTOCI investments, MTM gain is credited to Other Comprehensive Income (OCI) — it does not affect net profit but increases equity via the Investment Revaluation Reserve. The key difference is the P&L impact.

What is the journal entry for MTM gain reversal at next year-end?

MTM is not reversed — it is cumulative. At each year-end, the new adjustment is computed from the current fair value vs. the prior year-end carrying value. If the investment gained ₹10,000 in Year 1 and another ₹5,000 in Year 2, the Year 2 entry is: Dr Investment A/c ₹5,000 | Cr Unrealised Gain A/c ₹5,000. The Year 1 entry is not reversed.

Journal Entry for Mark-to-Market (MTM) Gain — Investment Accounting Guide 2025-26

Q: Is MTM gain taxable in India?

MTM gains (unrealised gains) are generally not taxable in India in the year of the fair value adjustment. Capital gains tax applies only when the investment is actually sold (realised). However, MTM gains for FVTPL investments are included in book profits and may attract Minimum Alternate Tax (MAT) under Section 115JB for companies.

01 — Concept

What Is a Mark-to-Market (MTM) Gain?

A mark-to-market (MTM) gain arises when the current market price of an investment exceeds its previous carrying value. At every reporting date (monthly, quarterly, or annually), companies must revalue investments to their fair value. When the fair value has risen, an MTM gain entry is passed — increasing the asset and recognising either a P&L income or an OCI reserve, depending on how the investment is classified under Ind AS 109.

Gain routes — FVTPL (P&L) or FVTOCI (OCI/Equity Reserve)

MTM

Mark-to-Market — mandatory at every Balance Sheet date under Ind AS 109

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Dr Investment A/c — always the debit when fair value rises above carrying value

Common asset types — Listed Equity, Mutual Funds, Bonds / Debentures

📌 The MTM Gain Formula: MTM Gain = Current Fair Value − Previous Carrying Value. If the result is positive, pass a gain entry (Dr Investment A/c | Cr Gain A/c). If negative, it is an MTM loss. The "previous carrying value" at the first year-end is the purchase cost; in subsequent years it is the closing fair value of the prior year-end.

✅ Two Routes for MTM Gain: (A) FVTPL — Fair Value Through Profit or Loss: The MTM gain is credited to "Unrealised Gain on Investment A/c" in the Income Statement — it increases reported net profit. (B) FVTOCI — Fair Value Through Other Comprehensive Income: The MTM gain is credited to "OCI — Unrealised Gain on Investment A/c" in Equity — it does NOT affect net profit but increases the Investment Revaluation Reserve.

02 — The MTM Gain Process

How MTM Gain Works — The 5-Step Process

Understanding each step of the MTM gain accounting process prevents errors in classification, measurement, and disclosure. Here is the complete workflow from obtaining fair values to posting the journal entry and making disclosures.

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STEP 01

Obtain Fair Value

Get the quoted market price (BSE/NSE closing price for listed equity) or NAV (for mutual funds) as at the reporting date. For unlisted instruments, use a valuation model (DCF, comparable company).

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STEP 02

Compute MTM Gain

MTM Gain = Fair Value on Reporting Date − Carrying Value (previous year-end fair value or cost if first year). Positive difference = MTM gain. Zero or negative = no gain entry needed.

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STEP 03

Identify Route

FVTPL? → Gain goes to P&L. FVTOCI equity? → Gain goes to OCI (never recycled to P&L). FVTOCI debt? → Gain goes to OCI (recyclable to P&L on disposal). Amortised Cost? → No MTM entry.

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STEP 04

Post Journal Entry

Dr Investment A/c by the MTM gain amount. Cr Unrealised Gain A/c (P&L) for FVTPL or Cr OCI — Unrealised Gain A/c (Equity) for FVTOCI. Update the Investment Ledger.

STEP 05

Disclose per Ind AS

Disclose fair value hierarchy (Level 1/2/3 under Ind AS 113). Show movement schedule: Opening Carrying Value → MTM Gain → Closing Carrying Value. Disclose unrealised gains separately from realised.

03 — Case Study: FVTPL MTM Gain Entry

Case Study 1: MTM Gain — FVTPL Listed Equity Investment

FVTPL (Fair Value Through Profit or Loss) is the default classification for equity investments held for trading and for all equity instruments not elected as FVTOCI. The MTM gain goes directly to the Income Statement, increasing reported net profit for the period.

FACTS OF THE CASE

Zerolev Capital — Listed Equity FVTPL Portfolio

Zerolev Capital purchases 2,000 shares of Infosys Ltd at ₹1,400 per share on 1 October 2025. Total cost = ₹28,00,000. At 31 March 2026 (year-end), Infosys closing price = ₹1,575 per share. Fair value = ₹31,50,000. MTM Gain = ₹3,50,000 (₹31,50,000 − ₹28,00,000). Investment classified as FVTPL.

Entry 1A: Initial Purchase of FVTPL InvestmentInitial Recognition at Cost

Account	Dr/Cr	Debit (₹)	Credit (₹)
Investment in Infosys Ltd A/c (FVTPL)	Dr	28,00,000	—
To Bank A/c	Cr	—	28,00,000
Total		28,00,000	28,00,000

Being purchase of 2,000 equity shares of Infosys Ltd at ₹1,400 per share. For FVTPL investments: brokerage, STT, and other transaction costs are expensed to P&L immediately — they are NOT added to the investment cost. Investment A/c is debited only at transaction price.

Entry 1B: MTM Gain — FVTPL at 31 March 2026 (Year-End)Mark-to-Market Gain → Profit & Loss

Account	Dr/Cr	Debit (₹)	Credit (₹)
Investment in Infosys Ltd A/c (FVTPL)	Dr	3,50,000	—
To Unrealised Gain on Investment A/c (P&L)	Cr	—	3,50,000
Total		3,50,000	3,50,000

Being MTM gain at 31 March 2026. Investment carried at ₹31,50,000 (2,000 × ₹1,575) vs cost of ₹28,00,000. MTM gain ₹3,50,000 credited to Unrealised Gain A/c in the P&L — it increases net profit for FY 2025-26. Investment A/c on the Balance Sheet = ₹31,50,000. This gain is unrealised — the shares have not been sold.

🔑 Why "Unrealised Gain" and Not "Revenue"? MTM gains are unrealised — the asset is still held. They are shown as "Unrealised Gain on Investments" under Other Income in the P&L, or as a separate line. They are NOT recognised as Revenue (which requires delivery of goods/services). Under Ind AS 109, all FVTPL fair value changes — both gains and losses — must be recognised in profit or loss in the period they arise.

04 — Case Study: FVTOCI MTM Gain Entry

Case Study 2: MTM Gain — FVTOCI Equity Investment (Via OCI)

When an entity makes an irrevocable election at initial recognition to classify an equity investment as FVTOCI, MTM gains bypass the Income Statement entirely. They accumulate in Other Comprehensive Income (OCI) within Equity — preserving reported profit from market volatility. Dividends still go to P&L.

FACTS OF THE CASE

Zerolev Holdings — Strategic Equity Investment (FVTOCI)

Zerolev Holdings purchases 50,000 shares of ABC Pvt Ltd (unlisted strategic stake) at ₹120 per share on 1 April 2025. Total cost = ₹60,00,000. At 31 March 2026, fair value based on DCF valuation = ₹145 per share (₹72,50,000 total). MTM Gain = ₹12,50,000. Irrevocably elected as FVTOCI at the time of purchase.

Entry 2A: Initial Purchase of FVTOCI Equity InvestmentInitial Recognition — Transaction Costs Capitalised

Account	Dr/Cr	Debit (₹)	Credit (₹)
Investment in ABC Pvt Ltd A/c (FVTOCI)	Dr	60,00,000	—
To Bank A/c	Cr	—	60,00,000
Total		60,00,000	60,00,000

Being initial purchase of 50,000 shares of ABC Pvt Ltd at ₹120 per share. Key difference from FVTPL: for FVTOCI investments, transaction costs (legal fees, due diligence costs) are added to the cost of investment — they are NOT expensed to P&L. If transaction costs were ₹50,000, Investment A/c would be debited ₹60,50,000.

Entry 2B: MTM Gain — FVTOCI at 31 March 2026 (Year-End)Mark-to-Market Gain → OCI / Investment Revaluation Reserve

Account	Dr/Cr	Debit (₹)	Credit (₹)
Investment in ABC Pvt Ltd A/c (FVTOCI)	Dr	12,50,000	—
To OCI — Unrealised Gain on Investment A/c (Equity)	Cr	—	12,50,000
Total		12,50,000	12,50,000

Being MTM gain at 31 March 2026. Investment carried at ₹72,50,000 vs cost ₹60,00,000. Gain ₹12,50,000 credited to OCI — it appears in the Statement of Other Comprehensive Income and increases the Investment Revaluation Reserve in Equity. Net profit (P&L) is completely unaffected. Balance Sheet shows Investment = ₹72,50,000 and Equity increased by ₹12,50,000 via OCI reserve.

⚠️ Critical Difference — FVTPL vs FVTOCI MTM Gain: FVTPL MTM gain increases reported net profit — visible in EPS, dividend capacity, and tax (MAT). FVTOCI MTM gain does NOT affect net profit — it sits in the Equity section as Investment Revaluation Reserve. Misclassifying an FVTOCI investment as FVTPL inflates reported profits with unrealised market movements. Once FVTOCI is elected for equity, it cannot be changed — the election is irrevocable.

05 — Case Study: Mutual Fund NAV Revaluation (MTM Gain)

Case Study 3: Mutual Fund Investment — NAV-Based MTM Gain

Mutual funds are measured at Net Asset Value (NAV) — published daily by AMCs. NAV-based MTM revaluation is a common requirement for companies holding equity mutual funds or debt mutual funds. All equity mutual funds default to FVTPL; debt mutual funds may be FVTOCI depending on business model and SPPI test.

FACTS OF THE CASE

Zerolev Investments — Equity Mutual Fund MTM

Zerolev Investments holds 10,000 units of Axis Bluechip Fund purchased at NAV ₹48.50 per unit. Total cost = ₹4,85,000. At 31 March 2026, closing NAV = ₹54.20 per unit. Fair value = ₹5,42,000. MTM Gain = ₹57,000 (₹5,42,000 − ₹4,85,000). Classified FVTPL (equity mutual fund — default).

Entry 3A: MTM Gain on Equity Mutual Fund at Year-End NAVMutual Fund NAV Revaluation — FVTPL Gain to P&L

Account	Dr/Cr	Debit (₹)	Credit (₹)
Investment in Axis Bluechip Fund A/c (FVTPL)	Dr	57,000	—
To Unrealised Gain on Mutual Fund Investment A/c (P&L)	Cr	—	57,000
Total		57,000	57,000

Being MTM gain on 10,000 units of Axis Bluechip Fund — NAV moved from ₹48.50 to ₹54.20 (gain ₹5.70 per unit × 10,000 units = ₹57,000). Credited to P&L as unrealised gain. Investment now carried at ₹5,42,000 on the Balance Sheet. If the company performs monthly MTM (common for listed companies), the same logic applies at each month-end using closing NAV.

✅ Monthly vs Annual MTM: Listed companies (Ind AS) typically perform MTM monthly for interim financial reporting. Unlisted companies may perform it annually. Either way, the carrying value at the start of each period is always the closing fair value of the prior period — not the original cost. For practical accounting in Tally, create a journal voucher dated the last day of each month with the NAV-based revaluation entry.

06 — Multi-Year MTM Gain Tracking

Case Study 4: Multi-Year MTM Gain — Tracking Across Periods

A common mistake is to compute MTM gain vs. original cost every year. The correct approach is to compute the gain from the previous year-end fair value (carrying value). Each year's MTM entry captures only the incremental movement from the last reported fair value.

FACTS OF THE CASE

Zerolev Capital — 3-Year MTM Gain Tracking

Zerolev Capital purchases 1,000 shares at ₹200 per share (cost = ₹2,00,000). Year-end prices: FY25 = ₹240 (gain ₹40,000), FY26 = ₹275 (gain ₹35,000 from ₹240), FY27 = ₹310 (gain ₹35,000 from ₹275). Investment is FVTPL.

Entry 4A: FY 2024-25 — First Year MTM Gain (₹200 → ₹240)Year 1 — Gain vs Original Cost

Account	Dr/Cr	Debit (₹)	Credit (₹)
Investment A/c (FVTPL)	Dr	40,000	—
To Unrealised Gain on Investment A/c (P&L)	Cr	—	40,000
Total		40,000	40,000

Year 1: Gain = (₹240 − ₹200) × 1,000 = ₹40,000. Investment carried at ₹2,40,000 at 31 March 2025.

Entry 4B: FY 2025-26 — Second Year MTM Gain (₹240 → ₹275)Year 2 — Incremental Gain from Prior Year-End Value

Account	Dr/Cr	Debit (₹)	Credit (₹)
Investment A/c (FVTPL)	Dr	35,000	—
To Unrealised Gain on Investment A/c (P&L)	Cr	—	35,000
Total		35,000	35,000

Year 2: Gain = (₹275 − ₹240) × 1,000 = ₹35,000. Computed from previous year's closing fair value (₹240), NOT original cost (₹200). Investment now carried at ₹2,75,000. Cumulative gain across 2 years = ₹75,000 (₹40,000 + ₹35,000).

🔑 Key Rule — Always From Prior Year-End Value: The Year 2 MTM gain entry is ₹35,000, not ₹75,000 (total from cost). The total cumulative gain of ₹75,000 is already reflected through the two individual year entries. If you computed vs. original cost each year, you would double-count Year 1's gain. Always: Current Year MTM = This year-end fair value − Last year-end carrying value.

07 — MTM Gain + Sale / Disposal Entry

Case Study 5: Sale of Investment After MTM Gain Recognition

When an investment with accumulated MTM gains is finally sold, the carrying value (adjusted for all MTM entries) is removed from the books. The difference between sale proceeds and current carrying value is the incremental realised gain or loss. For FVTPL, this goes to P&L. For FVTOCI equity, it goes to Retained Earnings — never to P&L.

FACTS OF THE CASE

Zerolev Capital — Sale After 3-Year MTM Accumulation

Using Case Study 4 data: Investment carrying value at 31 March 2027 = ₹3,10,000 (after 3 years of MTM gains). On 15 June 2027, all 1,000 shares are sold at ₹320 per share = proceeds of ₹3,20,000. Incremental realised gain = ₹10,000 (₹3,20,000 − ₹3,10,000).

Entry 5A: Sale of FVTPL Investment — Incremental Realised GainDisposal — Realised Gain vs Carrying Value (Not Cost)

Account	Dr/Cr	Debit (₹)	Credit (₹)
Bank A/c (Sale Proceeds)	Dr	3,20,000	—
To Investment A/c (FVTPL)	Cr	—	3,10,000
To Realised Gain on Sale of Investment A/c (P&L)	Cr	—	10,000
Total		3,20,000	3,20,000

Being sale of 1,000 shares at ₹320. Carrying value = ₹3,10,000 (last MTM-adjusted value). Incremental gain = ₹10,000 → credited to P&L as Realised Gain. Total economic gain from original cost: ₹1,20,000 (₹3,20,000 − ₹2,00,000) — ₹1,10,000 was already recognised through prior MTM entries; only ₹10,000 is new in the disposal year.

Summary — All MTM Gain Journal Entries

Quick Reference — All Mark-to-Market Gain Journal Entries

Transaction	Debit	Credit	Key Note
Purchase of FVTPL investment	Investment A/c (FVTPL)	Bank A/c	Transaction costs → P&L immediately, not added to cost
Purchase of FVTOCI investment	Investment A/c (FVTOCI)	Bank A/c	Transaction costs capitalised into investment cost
MTM gain — FVTPL (any asset type)	Investment A/c	Unrealised Gain on Investment A/c (P&L)	Increases reported net profit; affects EPS and MAT
MTM gain — FVTOCI equity	Investment A/c	OCI — Unrealised Gain A/c (Equity/Reserve)	No P&L impact; increases Investment Revaluation Reserve
MTM gain — FVTOCI debt (bond)	Investment A/c	OCI — Fair Value Reserve (Equity)	OCI recyclable to P&L when bond sold or matures
Mutual fund NAV gain (FVTPL)	Investment in MF A/c	Unrealised Gain on MF A/c (P&L)	Computed monthly using closing NAV; always from prior NAV
Second-year MTM gain (FVTPL)	Investment A/c	Unrealised Gain A/c (P&L)	Computed from prior year-end fair value — NOT original cost
Dividend from FVTOCI equity	Bank / Dividend Receivable A/c	Dividend Income A/c (P&L)	Dividends always to P&L even for FVTOCI investments
Sale of FVTPL investment (gain)	Bank A/c	Investment A/c + Realised Gain A/c (P&L)	Incremental gain from last MTM value to sale price only
Sale of FVTOCI equity (gain)	Bank A/c	Investment A/c + Retained Earnings A/c	Disposal gain → Retained Earnings, never to P&L
OCI transfer on FVTOCI equity disposal	OCI — Unrealised Gain A/c	Retained Earnings A/c	Equity-to-equity transfer; no P&L recycling for equity FVTOCI
OCI reclassification — FVTOCI debt disposal	OCI — Fair Value Reserve A/c	Realised Gain A/c (P&L)	OCI recycled to P&L for debt FVTOCI only

08 — Interactive Classroom

Accounts School — MTM Gain Journal Entry Interactive Classroom

Step into the virtual accounting classroom. Navigate through 6 animated lessons covering mark-to-market gain accounting — from the basic MTM concept to FVTPL, FVTOCI, mutual fund revaluation, multi-year tracking, and disposal — with live quizzes, teacher narration, and interactive notes.

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Accounts School

MARK-TO-MARKET GAIN · INVESTMENTS · ZEROLEV

Step into a virtual classroom! Learn MTM gain journal entries, FVTPL vs FVTOCI treatment, mutual fund NAV revaluation, multi-year gain tracking, and disposal entries with an animated teacher, interactive blackboard, live quizzes, and voice narration.

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MTM Gain

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09 — FAQ

Frequently Asked Questions

What is the journal entry for a mark-to-market (MTM) gain on FVTPL investments?

For FVTPL investments, the MTM gain entry is: Dr Investment A/c | Cr Unrealised Gain on Investment A/c (P&L). The gain amount = current fair value − previous carrying value. This gain is credited to the Income Statement, increasing reported net profit. The Investment A/c on the Balance Sheet is updated to reflect the new fair value. This entry is made at every reporting date — monthly, quarterly, or annually depending on the company's reporting frequency.

How is MTM gain recorded for FVTOCI equity investments?

For FVTOCI equity investments, the MTM gain entry is: Dr Investment A/c | Cr OCI — Unrealised Gain on Investment A/c (Equity). The gain bypasses the Income Statement entirely and accumulates in the Investment Revaluation Reserve under Equity. Net profit is completely unaffected. When the investment is eventually sold, the disposal gain goes to Retained Earnings — not to P&L — and the accumulated OCI is also transferred to Retained Earnings (no recycling to P&L for equity FVTOCI). Dividends from FVTOCI investments are still recognised in P&L.

How do I compute the MTM gain in the second and subsequent years?

The most common mistake is computing MTM gain vs. original cost every year — this double-counts prior years' gains. The correct method: MTM Gain for Current Year = Current Year-End Fair Value − Prior Year-End Carrying Value. Example: Cost ₹100. Year 1 FV ₹120 (MTM gain ₹20 in Y1). Year 2 FV ₹135 (MTM gain ₹15 in Y2 — computed as ₹135 − ₹120, not ₹135 − ₹100). Each year's entry captures only the incremental change from the last reported fair value.

Is MTM gain taxable in India?

MTM gains (unrealised) are generally not taxable in India under the Income Tax Act in the year of the fair value adjustment. Capital gains tax (Section 45) applies only when investments are actually sold (realised). However, for companies, unrealised FVTPL MTM gains are included in book profit for MAT (Minimum Alternate Tax) computation under Section 115JB. Additionally, MTM gains recognised in OCI (FVTOCI investments) are not included in either regular tax or MAT. Always consult your CA for entity-specific tax treatment.

What is the journal entry for mutual fund MTM gain?

For equity mutual funds (FVTPL by default): Dr Investment in [Fund Name] A/c | Cr Unrealised Gain on Mutual Fund A/c (P&L). The gain = (Closing NAV × units held) − previous carrying value. NAVs are declared daily by AMCs and are publicly available. For listed companies that report quarterly, mutual fund MTM is typically computed at each quarter-end using the quarter-end NAV. The previous carrying value is always the NAV-based value from the prior period-end, not the original purchase NAV.

When shares with accumulated MTM gains are sold, what is the journal entry?

For FVTPL: Dr Bank A/c (proceeds) | Cr Investment A/c (current carrying value, i.e., last MTM-adjusted value) | Cr Realised Gain A/c (P&L) if proceeds exceed carrying value. The realised gain is only the incremental difference between sale proceeds and the last MTM carrying value — not the total gain from original cost (which has already been recognised through prior MTM entries). For FVTOCI equity: the disposal gain goes to Retained Earnings and accumulated OCI is also transferred to Retained Earnings — neither goes to P&L.

What is the difference between MTM gain treatment for FVTOCI debt vs equity instruments?

Both FVTOCI debt and equity route MTM gains through OCI. The critical difference is at disposal: FVTOCI Equity — accumulated OCI is transferred to Retained Earnings on disposal; it is NEVER recycled to P&L (mandatory under Ind AS 109). FVTOCI Debt — accumulated OCI IS recycled (reclassified) to P&L when the debt instrument is sold or matures. So for debt FVTOCI: Dr OCI Reserve | Cr Realised Gain (P&L). For equity FVTOCI: Dr OCI Reserve | Cr Retained Earnings. This recycling difference is one of the most tested and misunderstood aspects of Ind AS 109.

Journal Entry forMark-to-Market (MTM) Gain

What Is a Mark-to-Market (MTM) Gain?

How MTM Gain Works — The 5-Step Process

Case Study 1: MTM Gain — FVTPL Listed Equity Investment

Case Study 2: MTM Gain — FVTOCI Equity Investment (Via OCI)

Case Study 3: Mutual Fund Investment — NAV-Based MTM Gain

Case Study 4: Multi-Year MTM Gain — Tracking Across Periods

Case Study 5: Sale of Investment After MTM Gain Recognition

Quick Reference — All Mark-to-Market Gain Journal Entries

Accounts School — MTM Gain Journal Entry Interactive Classroom

Frequently Asked Questions

Journal Entry for
Mark-to-Market (MTM) Gain