Question on Distributing a Fund

[Mark Phillips]

Dave,

Thanks! That is exactly what I was looking for. Now that I see it, it makes
perfect sense!

Mark

On Mon, May 23, 2016 at 9:38 PM, DaveC49 <davidcousens at bigpond.com> wrote:

> Hi Mark,
> The distribution from a trust is analagous to the owner of a business
> withdrawing funds. That is normally done through an Equity accounts E.g
> assuming 2 beneficiaries and you were distributing the funds in your
> example
> equally.
> First you will need to clear your Income accounts to Equity
>
> Income:change in market Value        15.00
> Equity: Retained Earnings
> 15.00
>
> Your total Asset balance is now 115.00 and the total Equity balance is also
> 115.00 while the Income:change in market value will now have a zero
> balance.
>
> This is because Income and expense accounts are both temporary or nominal
> Equity accounts used to record increases and decreases in equity during the
> current accounting period, you would normally close them to Equity on an
> annual basis, usually at the end of the financial year recording the
> difference as retained earnings. The normal procedure in doing this would
> be
> first to close the income and expense accounts to an Income Summary account
> which records the profit/loss (nett earnings for the period) and then close
> the Income Summary account to Equity:Retained earnings as above.
>
> To distribute the proceeds to the beneficiaries
> Equity:Distributions:BeneficiaryA       57.50
> Asset:investment account                                            57:50
>
> Equity:Distributions:BeneficiaryB       57.50
> Asset:investment account                                            57:50
>
> After these transactions your Asset:investment account  should have 0
> balance and the equity will also have a 0 balance assuming all the funds
> have been distributed. I am presuming that trust income is totally taxed in
> the hands of the beneficiaries in the above. This is not the case where I
> live (Australia) as in some circumstances trust income is taxable in the
> hands of the trustee and the trustee has to pay Pay As You Go tax to the
> tax
> office on any distributions to the beneficiaries as well as Capital Gains
> Tax on capital gains of investments. You may need to check your local
> legislation for the taxation of trusts in your jurisdiction which will
> modify considerably the above simplified treatment.
>
> Cheers
>
> David Cousens
>
>
>
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