accounting for managed investment accounts

[gnucash.133518b at telus.net]

On 2014-04-30 8:07 PM, John Ralls wrote:
> I think that the easiest way to deal with this is to pretend that it is a mutual fund with reinvested annual dividends. Create a fake security, make your initial purchase at C$10 per "unit", and enter a price by hand in the price editor every time you get a statement. Treat the year end tax statements as reinvested dividends. If you have separate tax treatment of capital gains and income, create appropriate income accounts and make the transactions so that whatever taxes you pay are recognized in the basis of your investment. The objective of that is so that you know when you redeem your investment in the pool you know how much of the gain you've already paid tax on.

John, I've been experimenting with your suggestion, but I'm still 
unclear on some of it so I would appreciate it if you could check me on 
them.

The first transaction is an opening balance entered as PRICE=10 and 
BUY=LAST_KNOWN_VALUE, where LAST_KNOWN_VALUE is the account value in 
dollars taken from the most recent monthly statement. That C$10 number 
is totally arbitrary, correct? No advantage to choosing another value?

Subsequent contribution/redemption transactions are entered as 
PRICE=LAST_KNOWN_VALUE/LAST_SHARE_BALANCE and either BUY=NEW_MONEY_IN or 
SELL=MONEY_OUT.

Upon receiving a monthly statement use the price editor to assign the 
price for the month end date to be STATEMENT_VALUE/CURRENT_SHARE_BALANCE.

One of the problems in entering transactions is determining 
LAST_KNOWN_VALUE. Although current value appears in the status bar at 
the bottom of the register view, this is only useful if one is always 
careful to enter all transactions in chronological order, which doesn't 
always happen. Is there any way to enable the display of a "Balance 
(CAD)" column in the register?

Of course the alternative to using 
PRICE=LAST_KNOWN_VALUE/LAST_SHARE_BALANCE is to use 
PRICE=LAST_KNOWN_PRICE but there is no way to determine the last known 
share price from within the register given that it may have changed 
between transactions. This necessitates opening the price editor and 
drilling down to the fund in question each time. Doable but inconvenient 
and error prone. I'd hoped that I could instead enter a month end 
zero-buy transaction in the register to do the value update. This 
actually does work as a convenient alternative to using the price editor 
because the price editor still gets updated, but it doesn't achieve the 
desired result in the register. As soon as such a transaction is 
entered, GnuCash reverts the price field to 1. Is there a way to achieve 
a zero-buy entry that would visually retain the new share price in the 
register transaction? As an aside, this style of recording balance 
updates would be extremely helpful when exporting the account's 
transactions for external XIRR calculations.

Your reinvested annual dividends from tax statements suggestion is what 
I have really been struggling with. I think you're saying that at the 
end of the year I need to add income entries for each of the year's 
accumulated total of each kind of income. An entry for total realized 
capital gains, another for total dividends, another for total interest, 
etc. The potential problem with getting these values from the tax 
statements is that such statements only report totals for taxable 
income. The missing non-taxable income would mean my book doesn't 
include all earned income. Is this not a problem? Will I not end up with 
an imbalance somewhere?

During the course of the year I would be updating the price editor using 
the month end account value. This value necessarily includes the real 
world effects of internally retained realized capital gains, dividends, 
interest, etc. Am I not effectively doubling all that income by 
depositing it all in again at the end of the year? I'm confused between 
thinking that is the case and realizing that the year's final account 
balance is actually only determined by my final entry in the price editor.

I'm afraid I haven't understood "make the transactions so that whatever 
taxes you pay are recognized in the basis of your investment". What does 
this mean?

Carl