Adv Port Report - Capitalization of Commissions

Sun Dec 27 15:14:58 EST 2015

Hey David,

Thank you for the input!  That's right, in order to realize the gain onto
the I/S, right now a zero share split is required.

In terms of commissions on the sell side, it's less of a problem since
commissions are deducted against gross proceeds anyways on computing
realized gains; I usually have a zero share split with a debit to a
commissions account and that part works fine for me.

For example, this is what my typical sell transaction would look like.  In
this example, 1 share of BRK-B was purchased for $200 cash (inclusive of
commissions).

*DR                             Shares  DR       CR*
Investment Cash                        290

Trading:NYSE:BRK-B             1       200
Assets:Investments:BRK-B               100
Expenses:Commissions                    10
*CR*
Assets:Investments:BRK-B      -1                300
Trading:Currency:CAD                            200
Income:Gain/Loss on Sale                        100

The same example in screenshot here, in case the tab spacing above doesn't
work out (if you aren't viewing the above in monospace font):
http://i.imgur.com/vwI1KVq.png

In this example, the Adv Port report will sgow a total gain of $90 (100
less $10 commissions), which is how the IRS would do it, along with several
other national tax authorities (Canada, etc).  The brokerage fees column
will reflect the $10 debited to an expense account as commissions, since
the default behaviour seems to be to treat all expense account
debits/credits as broker fees, and all income account splits are ignored.

In summary, on the sell side, we are already able to differentiate between
gains and commissions, since you're able to send the correct debits and
credits to those income accounts.  That being said, since ALL expense
account transactions are assumed as broker fees, while your I/S will
reflect the difference between commissions and withholding taxes, the Adv
Port report will not; it will lump taxes in with fees.

A workaround would be to run an I/S report only on your trading accounts,
then you'd see fees vs taxes, but not on a per-stock basis.

This is where the action flag could come into play:
> expense splits marked with the "fee" action would be treated as broker
fees (for commissions paid on sale)
> zero share splits to the stock asset marked with "fee" action would be
treated as broker fees (commissions capitalized into the cost basis)
> expense splits NOT marked with "fee" would be treated as "all other
expenses" (ie withholding taxes, etc)
> zero share splits to the stock asset NOT marked with "fee" would be
treated as the offsetting DR/CR to the income account realized gain/loss
split (this is the current behaviour)

This way, commissions on purchase are capitalized, commissions on sale are
expensed, other expenses can still be tracked, and the realized gain/loss
amounts can still be tracked to a gain/loss income account.

A further extension to David C's point, we could do away with zero share
splits altogether, if the "income" action flag is used for the offsetting
DR/CR to the asset account for the realized gain/sale.  Though that being
said, I don't see a particular problem with keeping this aspect the way it
is; wven with the use of this flag, you would still need a zero-share split
to balance out the balance in the asset account resulting from the sale
split (the split where we CR the asset for the amount of the gross
proceeds).

Cheers,
CDB-Man

*CDB-Man*
*Email:* cdbman.online at gmail.com

On Sun, Dec 27, 2015 at 1:35 PM, David Carlson <david.carlson.417 at gmail.com>
wrote:

> CDB-Man
>
> I am happy to see that there is interest in this problem and that you have
> even proposed a solution.
>
> However, I think that because GnuCash currently uses a zero share line in
> the security account to define realized capital gains, that needs to be
> addressed in whatever final solution might be chosen.  I think that
> realized gains still need to be recognized separately from expenses such as
> commissions and taxes.  Using an identifier in the "Action" column sounds
> like a good place to make these distinctions.  If such a concept is
> developed, it probably should also allow for a distinction between short
> term gains and long term gains.
>
> Would it be possible for such identifiers to be recognized by other
> reports as well for jurisdictions such as the US that effectively require
> that expenses be capitalized in these transactions?  It may be possible to
> omit the zero share lines if the "Action" identifier is used in the
> respective income or expense lines.
>
> David C
>
> On Sat, Dec 26, 2015 at 11:03 PM, CDB-Man <cdbman.online at gmail.com> wrote:
>
>> Hey everyone,
>>
>> I was talking to jralls over on IRC, and he suggested posing the question
>> to the group here, and more specifically to *Mike Alexander* as well, the
>> maintainer of the Adv. Portfolio Report if he's listening.
>>
>> The conversation is recorded in the #gnucash IRC logs, starting at
>> 13:47:26
>> time stamp.
>> http://lists.gnucash.org/logs/2015/11/2015-11-21.html#T13:47:26
>> Most of the issue and my suggested possible solution is detailed in the
>> conversation.
>>
>> *To put it into paragraph form instead:*
>>
>> Essentially, the issue at hand is how the advanced portfolio report
>> handles
>> commissions on purchase of securities.  Current behaviour is to only
>> consider an amount as commissions, if the amount is a debit to an expense
>> account.
>>
>> The advanced portfolio report itself will capitalize the commissions into
>> the cost basis if you tell it to do so in the options.  However, it means
>> that in my actual account and on my balance sheet (B/S), it won't be
>> capitalized there, as it's been debited to an expense account.  It would
>> also mean the commissions are flowing through profit and loss (P&L) via
>> the
>> income statement (I/S), so not correctly reflecting the capitalization of
>> the commissions.
>>
>> My suggestion is to make use of the activity flags in the "Action" column
>> of the stock/commodity register (the one with buy/sell/dividend/fee/etc),
>> specifically the "fee" option.  My general idea is to make a split for the
>> commissions that debits the stock account, so that the commissions are
>> capitalized into the asset.  Using the :fee: activity option, the Adv
>> Port.
>> Report would then pick up on it, and capitalize it as well into the cost
>> basis in the report + summarize it in the "brokerage fees" column too.
>>
>> I'm aware that not all countries have tax laws that require commissions to
>> be capitalized, so perhaps have a separate option in the advanced
>> portfolio
>> report?  For example, some sort of toggle that would allow it to recognize
>> all 0 share debit splits to the stock account to be counted as
>> commissions,
>> to reflect commission capitalization.
>>
>> I took a brief look at the Scheme file for the advanced portfolio
>> report...
>> and it's most likely beyond me.  I haven't worked on code since 2010; I'm
>> now in accounting at a CPA firm.
>>
>> Well, thank you all for listening to my rant, and I'd appreciate if anyone
>> could help out, or could make some updates to the Adv. Port. report.
>>
>> Thanks!
>> CDB-Man
>>
>> *CDB-Man*
>> *Email:* cdbman.online at gmail.com
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>
>