Non-taxable distribution (return of capital)

[Dawning Sky]

On 5/14/07, Mark Johnson <mrj001 at shaw.ca> wrote:
> Dawning Sky wrote:
> > On 5/14/07, Jimmy Kaplowitz <jimmy at kaplowitz.org> wrote:
> >
> >> (Please CC me on replies since I'm not subscribed to the list, though
if
> >> you forget I will try to remember to look at the archives.)
> >>
> >> Hi,
> >>
> >> I'm trying to properly account for a so-called non-taxable
distribution,
> >> or return of capital, that some mutual funds of mine give to me
> >> periodically. They consist of, as I said, a return of capital I put
into
> >> the mutual fund, reducing my cost basis in the fund and lowering the
> >> price per share but without reducing the number of shares I own or (in
> >> most cases) giving me any taxable income.
> >>
> >> In the gnucash-user archives from January 2005, I found instructions
> >> saying to credit the mutual fund account for the amount of the
> >> distribution in a 0-share transaction, and to debit the relevant cash
> >> amount for the same amount. This is accepted, however it causes my
books
> >> not to balance for all dates on or after such a transaction. The assets
> >> no longer equal the liabilities plus equity; they grow on a daily
basis,
> >> while the liabilities plus equity do not. In the trial balance, the
> >> debits also do not equal the credits. When I temporarily void those
> >> transactions, the books balance again. Something is wrong here.
> >>
> >> This isn't the usual stock sale split example in the FAQ, since no
stock
> >> was sold. I have no idea how to fix this; please provide pointers.
> >> Thanks.
> >>
> >> - Jimmy Kaplowitz
> >> jimmy at kaplowitz.org
> >>
> >> P.S. - I'm using Gnucash 2.0.2, and am happy to upgrade to 2.0.5 if my
> >> problems are due to a bug that was fixed between the two versions.
> >>
> >
> > I'm not an account, but I would suggest just treating the return as an
> > income (whether it is taxable or not is another issue).  The decrease
> > in value of the MF acount will play out by itself since the NAV is
> > reduced.
> >
> > DS
> >
> >
>
> It is not simply income as the cost basis of the funds must be reduced.
> This must be tracked for capital gains purposes when the funds are sold.
>
> I have the same problem.  The funds I have also do nasty things with
> capital gains distributions.
>
> I have found no way for gnucash to simultaneously track the cost basis
> and number of shares.  I have given up trying to get gnucash to track
> the number of shares, and treat these funds the same way as the Degas
> painting example in the manual.  (This is a pain in the neck when I want
> to update the unit price, but I can track the cost basis accurately.)
>
> Mark
>
>

So the question becomes how to track the cost basis for stock or mutual
funds.  Usually I let my broker take care of this for me.  But if I want to
track it in Gnucash, I probably would utilize an equity account.  It will
only track the total cost, not the cost per unit.  Again, I'm not an
account.

The following are the journal entries:

 *General Journal*   *Date*  *Description*  *Account*  *Debit*
*Credit*  2007-05-01 Opening balance





 Assets:Checking Account
$1,000.00<gnc-register:split-guid=744d59211e00fd25c16f4ebdebdb1449>


 Equity:Opening Balances
 $1,000.00 <gnc-register:split-guid=055bf586d3d73d92c38b13ed72401817>
2007-05-02 Buy Mutual Fund FBALX





 Equity:FBALX Cost
$1,000.00<gnc-register:split-guid=d605e7c17bd8ddd130432aa9bf37c037>


 Assets:Checking Account
 $1,000.00 <gnc-register:split-guid=1981a11a52a4dde32fafa60b5f15bf07>
2007-05-02 Buy





 Assets:FBALX  100
FBALX<gnc-register:split-guid=dc9a3b4c29e2f794f31b68c579f98b8f>


 Equity:FBALX Cost Offset
 $1,000.00 <gnc-register:split-guid=ab34f8dddaeb3745360de5154fd0496e>
2007-05-13 Return of Capital





 Assets:Checking Account
$100.00<gnc-register:split-guid=f363cbc5a0e4ff5d36307cc766c0ad66>


 Equity:FBALX Cost
 $100.00 <gnc-register:split-guid=58fee8f8170f2ba3233507499bc3f6da>
And this is the balance sheet

*Balance Sheet 2007-05-14*


  *Assets *                      *    *
Assets<gnc-register:acct-guid=cd01ee700d3a291c897ace0895c629e7>
     $0.00           Checking
Account <gnc-register:acct-guid=da98bc47726174ea8e52fbfd9fdb2d82>
     $100.00
FBALX <gnc-register:acct-guid=035f82a53374788ab10e1b9afc05fac5>             100
FBALX  $900.00         *Total Assets *                      *$1,000.00 *
------------------------------
  ------------------------------
  *Liabilities *                      *    *
Liabilities<gnc-register:acct-guid=abfe042ac3f74edf685cf5889c2e98b8>
              $0.00
*Total Liabilities *                      *$0.00 *
------------------------------
  *Equity *                      *    *
Equity<gnc-register:acct-guid=2fe19e65873e39a91a3446bb7048ac1d>
     $0.00           FBALX
Cost <gnc-register:acct-guid=f1c3a69bd7cef578485c7eb499dc3303>
  -$900.00           FBALX
Cost Offset <gnc-register:acct-guid=09700f2f6fbba528d4e29e4474668384>
        $1,
000.00             Opening
Balances<gnc-register:acct-guid=580adefcb308aa949b200381e992205e>
   $1,
000.00        *Unrealized Losses *                      *$100.00 *   *Total
Equity *                      *$1,000.00 *
------------------------------
  *Total Liabilities & Equity *                      *$1,000.00*