basis calculation in Advanced Portfolio report

Mike Alexander mta at umich.edu
Sat Apr 11 20:30:05 EDT 2015


On 11 Apr 2015, at 14:56, David Zelinsky wrote:

> I'm trying to understand how the Advanced Portfolio report calculates
> Basis and Value.  It seems broken, but maybe I'm not understanding
> something.
>
> I have a stock which issued a number of "return of capital"
> distributions.  As I understand it, this means the number of shares
> stays the same, but the basis is reduced by the amount of the
> distribution.  There is no gain or loss involved.  It should be
> equivalent to a stock split followed by a sale of the extra shares at
> their original cost.

That seems like an odd way to record a return of capital.  You must have 
trading accounts turned off (not that this matters for the question you 
have) since with them turned on it's difficult to enter that 
transaction.  GnuCash doesn't seem to know how to automatically balance 
trading accounts when the transaction contains two splits that have a 
net share balance of zero, but a non-zero net value.

I think the Advanced Portfolio report may be working correctly when you 
record it as given in the example in your message.  After the fake split 
you have 110 shares with a basis of $1000 or $9.09090909 per share.  You 
sell 10 of these for $100.  These 10 have a post-split basis of $90.91 
(rounded) for a gain of $9.09.  The remaining 100 shares are worth $1000 
but have a basis of $1000-$90.91 or $909.09 leaving and unrealized gain 
of $90.91.

Putting the split in a separate transaction after the sale also seems 
odd, but it gives results at least close to correct.  In this case I get

          Shares:      100.00
           Price:      $10.00
           Basis:     $900.00
           Value:   $1,000.00
   Realized Gain:       $0.00
Unrealized Gain:     $100.00
      Total Gain:     $100.00

After the sale you have 90 shares with a basis of $900 (since you sold 
10 shares with a basis of $100).  After the split you have 100 shares 
worth $1000, but the basis didn't change and it's still $900 leaving an 
unrealized gain of $100.  I think this is correct, at least according to 
my understanding of US tax law.  The return of capital reduces your 
basis.  You don't pay taxes on it when you get it, but it will increase 
your capital gain (or reduce your loss) when you sell the stock.

The way I  would record this is as a single two split transaction 
(ignoring possible trading account splits):

   DESCRIPTION	ACCOUNT		SHARES  PRICE   BUY     SELL
   -----------------------------------------------------------
   R/C           XYZCorp	                            100
                 MyBank                     100

I.e., sell zero shares for $100.  This produces the same results as 
given above.  Note that in each case the total gain is $100, but the 
first case it is partly realized and partly unrealized instead of all 
unrealized.

Does this make any sense?  If you want I can send you the sample file 
that contains the three cases.

                Mike


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