[GNC] Help - how to account for a Distribution Reinvestment that is a Return of Capital
bunk3m
bunk3m at gmail.com
Fri Jun 6 19:54:58 EDT 2025
Thank you David and David. It starts to make a bit more sense.
Thank you for direct messaging me. I forgot that I'm on digest so I
don't get the replies until later.
> But then we'd have to get into how you are using gnucash generally. Are you using trading accounts? Are you recording individual stock purchases as shares and prices and modifying those prices regularly? etc.
I am using Gnucash generally for basic accounting and bill payment. I
made one cash transfer to an investment account and didn't touch it
until I sold the investment. I've tried a few times to figure the
investment portion out but couldn't balance things out so I deleted
transactions ... and left the original purchase and lived with the
statement from the investment firm. Those were all in tax free accounts
so I could leave it. Since this is a limited partnership and taxable, I
can't just forget about it.
So this time I want to track it properly. So yes, I want to track the
individual purchases as shares and prices and modify those prices regularly.
So I entered the purchase in $/unit, # of units, total investment since
the funds came from my chequing account.
i.e.
Debit Asset:Bank Account Cash $500
...............Credit Asset:Investment:Private Equity:Limited Partnership
When I did the transaction the window popped up and I put in the
$10/unit x 50 units = $500. Everything OK so far.
So the LP account statement says "Distribution" of $40. Reinvestment of
$40 (4 units at $10). This makes sense so far as it looks like all the
other investments. I think I can use the Stock Assistant to do this
like in the guide.
However since this is an LP and we apparently share in profit and loss
etc. in proportion of the number of units we have. So this tax form has
a bunch of other stuff that I suppose I can just enter into the tax prep
software if it had the right form. I've used the tax prep software for a
decade but somehow this form does show up. The software support says to
just enter the data into the right fields. Ha ha ha. The damn form in
the government tax guides just not in the software. (Perhaps new
software required...)
My first step on this odyssey is to get Gnucash showing me the right
transactions. I guess that will have to match the distribution and
reinvestment. Then I can try to figure out how to do this return of
capital.
From other tax forms that were on flow through investments, I know that
somehow the adjusted cost base is reduced so the eventual sale of the LP
units will result in a capital gain. Conceptually I get it, but how to
do it is still a mystery. :)
God, my head is spinning.
Thanks again.
B.
On 06.06.2025 17:45, David Warren wrote:
> Hi again. I'm going to go ahead and cc the whole group.
>
> I wouldln't be so hard on yourself. What I try to do in these
> situations, as I am far from an accountant (!), is just sit with pen and
> paper (or on my computer with virtual pen and paper) and try to think of
> what two things (debits and credits) are being increased or reduced.
>
> And I will often "break down" transactions into their consitutent parts,
> or even represent a single transaction as if it were two.
>
> So if one of my limited partnership investments sent me money back (say
> $40) as return of capital, I would generally record that as
>
> Debit Asset:Bank Account Cash $40
> ..............Credit Asset:Limited Partnership Investment $40
>
> Then if I used that cash to reinvest back in the partnership, my next
> transaction would be
>
> Debit Asset:Limited Partnership Investment $40
> .................Credit Asset:Bank Account Cash $40
>
> And you may notice that the net effect of those two transactions is.....
> nothing.
>
> So if nothing else happened, I might record both of these transactions
> for other reasons (if the PRICE of the units has changed, there could
> very well be future tax consequences here.)
>
> But then we'd have to get into how you are using gnucash generally. Are
> you using trading accounts? Are you recording individual stock
> purchases as shares and prices and modifying those prices regularly? etc.
>
>
> On Fri, Jun 6, 2025 at 5:34 PM bunk3m <bunk3m at gmail.com
> <mailto:bunk3m at gmail.com>> wrote:
>
> Thank you for the quick reply, David
>
> Yes, I'm a bit muddled on this.
>
> I bought an investment. They pay a distribution and use the
> distribution to buy more units. It's a typical DRIP.
>
> Then at the end of the year, I'm told the partnership income was return
> of capital. So I think the adjusted cost base of the investment is
> reduced so when you sell it is a capital gain.
>
> Many moving parts and I'm confused. Apologies for the crappy
> example, I
> was trying to logic out what was happening. I guess I failed.
>
> Thanks.
> B.
>
> On 06.06.2025 17:02, David Warren wrote:
> > Hi. I don't see how you are going to get an accurate gnucash
> > representation before you have a strong view of what you think the
> > actual real world financial representation is supposed to be.
> >
> > If I bought 50 units of a limited partnership for $10/share
> (total of
> > $500), and then the partnership returned $40 of capital to me (i.e.
> > $0.80/share x 50 units), everything else being equal I don't know
> why
> > you would say "there are now xxx units @ $10/unit". Unless
> something
> > else has occurred, an $0.80/share return of capital should result in
> > units worth (and costing) $9.20/unit. So I don't know how you're
> > getting to your statement that "there should be $540 in asset
> value of
> > the LP units".
> >
> > If I owned $500 of something, and someone returned $40 of that
> capital
> > to me, but then offered to sell me new units in lieu of sending
> me that
> > $40 (or think of it as the partnership returned $40 and then you
> /bought
> > /new units), I don't see any value being created solely in that
> process.
> >
> > Of course, if the units have /appreciated /in value in some way, you
> > will need some mechanism to reflect that, and also to record or not
> > record "income".
> >
> > We can tell you plenty of ways to record return-of-capital
> distributions
> > in gnucash.
> > We can tell you plenty of ways to record income in gnucash.
> > But we don't have enough information from what you wrote to get
> you a
> > perfect answer.
> >
> > On Fri, Jun 6, 2025 at 3:56 PM bunk3m <bunk3m at gmail.com
> <mailto:bunk3m at gmail.com>
> > <mailto:bunk3m at gmail.com <mailto:bunk3m at gmail.com>>> wrote:
> >
> > I'm trying to figure out how to account for a quarterly
> distribution
> > that I receive from an investment (call it "LP") that is
> converted into
> > new units. While that would be similar to a distribution
> reinvestment
> > (DRIP), the income is a return of capital not income.
> >
> > I can't figure out how this is supposed to be done in
> Gnucash. While I
> > found parts of this transaction in tutorial and guide, I'm still
> > confused.
> >
> > So the way I understand things, this is what I should see in
> the first
> > quarter after 50 units of LP were purchased at $10/unit and
> total of
> > $500. Return of capital $40 that is reinvested in 4 units.
> >
> > Initial purchase in first quarter:
> > [Asset:Investments:PrivateEquity:LP] $500
> > being 50 units at $10/unit
> > [Cash] -$500
> >
> > Distribution amount $40 (Price still $10/unit) in second quarter.
> >
> > After distribution there should be $540 in asset value of the
> units of
> > LP since there are now 54 units @ $10/unit. But the cost
> base of the
> > investment should be, I think, $500 ($500 initial investment
> - $40
> > return of capital + $40 return of capital reinvested in units).
> >
> > Is this conceptually what is supposed to happen? If so, how
> do I get
> > Gnucash to show this? When I try to do the return of capital
> I end up
> > with the correct number of units but lower value and $40 income.
> >
> > Is a reference to help me understand this please let me know
> where to
> > find it.
> >
> > Thanks.
> >
> >
> >
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