Need user (and accountant) input on advanced portfolio report

[Paul Schwartz]

----- Original Message ----
From: Phil Longstaff <plongstaff at rogers.com>
To: gnucash-user at lists.gnucash.org
Sent: Tuesday, November 13, 2007 11:57:50 AM
Subject: Re: Need user (and accountant) input on advanced portfolio report

Andrew Sackville-West wrote:
> Hi list, 
>
> I'm trying to clean up the mess I made of the advanced portfolio
> report a couple years ago. To that end I need some information about
> how it should behave. And yes, I know the report is horribly
> broken... I'm getting most of that sorted, but as part of that I've
> ripped most of the guts out of the report and need help with this
> issue...
>
> The specific question is the handling of brokerage fees. I realise
> there are probably several answers to this and different ways to
> handle it. I'm hoping to get it boiled down to a couple of sane
> choices that could be easily put into a report option.
>
> The first option I see is to completely eradicate evidence of
> brokerage fees. Here is an example: 
>
> Buy 100 shares @10 with a fee of $10. Enter a price a few days later
> of $15 (woo hoo! 50% in a few days!). If I eradicate evidence of the
> fees, it looks like this
>
> symbol shares price basis value moneyin moneyout unrealised-gains
 realised-gains ...
> foo    100    $15   $1000 $1500 $1000    $0      $500              $0
>
> then later you sell 50 shares at $20, paying a fee of $10 again. but
> again, we're eliminating the brokerage fees...
>
> symbol shares price basis value moneyin moneyout unrealised-gains
 realised-gains ...
> foo    50     $20   $500  $1000 $1000   $1000     $500            
  $500
>
> This option gives a report that looks *only* at the stocks themselves
> and their performance and ignores what you spent to get that
> performance.
>
> Another option: ignore the brokerage fees in the basis calculations,
> but leave them in the moneyin/out calculations. This sort of
> automatically shows how you did including the fees. so the first
> example above looks like this:
>
> symbol shares price basis value moneyin moneyout unrealised-gains
 realised-gains ...
> foo    100    $15   $1000 $1500 $1010    $0      $490              $0
>
> where unrealised gains are calculated on the actual money moved not
 the relative
> difference between current value and basis. you could also continue
 to
> calculate the unrealised gains using the difference between value and
> basis, so that it remains at $500?
>
> the example after the sale described above
>
> symbol shares price basis value moneyin moneyout unrealised-gains
 realised-gains ...
> foo    50     $20   $500 $1000  $1010    $990      $490            
  $490
>
> note that money out is $990 because of the $10 fee taken by the
> broker. 
>
> A third option: include the brokerage fees in the basis
> calculation. I'm not sure I understand all the ramifications of this,
> but here is how I see the examples:
>
> symbol shares price basis value moneyin moneyout unrealised-gains
 realised-gains ...
> foo    100    $15   $1010 $1500 $1000    $0      $490              $0
>
> in this example, the money in represents the actual money into the
> stock. If the new price hadn't been reported, it would look like
 this:
>
> symbol shares price basis value moneyin moneyout unrealised-gains
 realised-gains ...
> foo    100    $10   $1010 $1000 $1000    $0      -$10              $0
>
> and the sale from above
>
> symbol shares price basis value moneyin moneyout unrealised-gains
 realised-gains ...
> foo    50    $20   $505  $1000 $1000    $1000      $495            
  $495
>
> Another possibility: put all the fees into their own column. That way
> the user could determine what do to with the fees. In that particular
> case, I would suggest that the fees be ignored in the other columns,
> presenting a pure picture of just how the stock performed, and then
> the total fees are presented. 
>
> and so on and so on. There are obviously many many different ways
 this
> information could be reported. 
>
> I would appreciate some input so that this report can better conform
> to what users expect and need. 
>
> thanks
>
> A
>   
I'm not an accountant, but I think the situation is similar to a 
purchase with tax.  If I buy an asset for $X and pay $Y tax (total cost
 
$X+Y), the value of the asset for accounting purposes is $X.
  Similarly, 
the cost basis if I pay $X for the shares/units and $Y as brokerage
 fee, 
the cost basis is $X.  The $Y is an expense associated with that asset.
  
If I buy 10 shares at $10 (with $20 fee) and sell at $15 (with $10
 fee), 
my capital gain is $50 (10 shares * $5) and an expense of $30.  I think
 
I like your 4th option best (fees in their own column).

Phil

The situation is different depending on whether you are an investor or a business. The business can expense the brokerage fees/commissions while the investor must put those charges into the basis of the asset.  Thus the need for options somewhere in the configuration setup.

IANNA also but have studied the matter.

BTW, this is only valid for US accounting/tax laws.

Paul Schwartz
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