Unrealized/Realized Gains and Losses

[Linas Vepstas]

On Thu, Aug 02, 2001 at 04:31:07PM -0500, Bill Gribble was heard to remark:
> On Thu, Aug 02, 2001 at 04:08:02PM -0500, Linas Vepstas wrote:
> > OK, so then how does one go about recording an unrealized gain or
> > loss?  Are you trying to say that the *only* way to record an
> > unrelized gain/loss is to record a new price?  Or rather, that this
> > is the only way that gnucash *should* support it?
> 
> I'm just saying that unrealized gains and losses aren't accounting
> events, and so don't need to be recorded as transactions.  Unrealized
> gains and losses are just differences in net asset value due to a
> change in price; so what's the problem with recording the change in
> price in order to show the change in asset value?  You seem to be
> upset about that but I don't understand why.

!

Bill, You seem to be trying very hard to needle me, and I don't know 
why.  Writing an email that implies I'm wrong, followed by a body of 
text that merely repeats what I said earlier, presented as if its a 
counter-argument, concluded with a personal jab ... doesn't inspire 
warmth or camraderie.  

> > I provided a suggestion for how to 'fix' gnucash, but you seem to be
> > rejecting it.  Do you have a better solution?
> 
> I don't understand what the problem is.  The way gnucash works now
> seems correct to me, with the exception that some reports probably
> need to be updated to calculate unrealized gains and losses if they
> don't now.  What is it that you're trying to fix?

The way gnucash worked in version 1.2 was right, when the reports
included cost-basis accounting, which, among other things, helped get
the realized/unrealized gain figures correct.  This feature has been 
broken/unsupported in 1.4/1.6, unless christian stimming worked some
magic recently that I'm not aware of.  

Never mind that we've never moved beyond this point, to actually try 
to deal with some of the more subtle issues, such as 'what depreciation 
formula gets used', 'how is the formula implemented'.  Making a 
statement that 'its just a change in price' and 'we just fix some 
reports' ducks all the hard issues.  I know you're smart, I've seen 
what you can do; I'm irritated that you are being a rhetorical luddite.

To provide a specific example to chew on:

jan 15 1996 buy 50 units @ $10
jul 15 1996 buy 50 units @ $15
jan 15 1997 buy 50 units @ $20
jul 15 1997 sell 60 units @ $18
jan 15 1998 sell 60 units @ $19
jul 15 1998 record new price of $23

what is the cost basis?  what is the realized gain? what is the
unrealized gain? what's the 'long tem cap gain'? what's the 
'short term cap gain'?  Which units did you sell, the ones you 
bought long ago, or the ones you bought recently? 

The answers depend on the accounting method used.  For stock 
shares, u.s. irs rules, its usually 'fifo', but for factory 
widgets, it can be 'lifo'.   LIFO can provide a huge tax benefit,
come appraisal time.   Loosing some of your inventory due to
spoilage helps complicate things.  Depreciating your inventory along 
the way complicates things. 

--linas


-- 
I'm very PUBLIC-MINDED, I'm helping a NIGERIAN get his $25,000,000 back!