I have had the Investment Revaluation tab activated and had made some entries but it has disappeared from my active tabs and is not available on the inactive tabs list. I’m using Cloud version 24.6.8.1635.
It turns out Inventory Revaluations is not needed after all. If you have entered Investment Market Prices, then revaluation entries are generated automatically based on the prices entered in Investment Market Prices screen.
And when drilling down into Investments account, then the value of investment on balance sheet is simply acquired quantity multiplied by its market price. Much simpler to follow than manual inventory revaluation entries.
Unfortunately the current implementation breaks Managers investment calculations again as it fails to differentiate between realised and unrealised gains/losses
Investments in things such as listed shares change constantly. The changes are important for 2 separate reasons.
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Unrealised gains/losses: this occurs when a Business needs to know it’s current net value. An example of which is distribution of realised and unrealised profit / loss to shareholders. Doing so then allows accurate valuation of subsequent contributions or withdrawals by a share holder. Note no actual sale of investments occurs during this process and so there is typically no tax actually paid to the taxation authority .
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Realised gains/loss: this occurs when some investments are actually sold. The capital gains/loss depends only on what price the investment units were actually physically purchased and sold for. The tax authority will typically require income / capital gains tax is paid on the investment gain/loss. This calculation is completely independent of any prior unrealised gain/loss calculations.
Please see Investments unexpected behaviour - #3 by Patch for a worked example, which is followed by it’s equivalent manual calculation method
Testing Manager v24.06.08.1634, it no longer calculates Realised gains/losses as required for income tax payments
PS.
In an ideal implementation, the Realised gain/loss calculation would normally be automatically calculated but would support optional manual entry of the “Average purchase price” should a Business want to manually select which specific investment units are being sold (which may have tax payable implications where there is a difference in tax rate depending on length of time a business has held particular units and/or units were purchased for significantly different prices).
Considerations for this topic.
Securities can be classified as follows:
- Available for Sale Securities. Unrealized gains/losses are reported on the balance sheet.
- Trading Securities. Unrealized gains/losses are reported on the income statement.
- Held to Maturity Securities. These are not recognized as unrealized in the financial statements.
Additionally, the reporting methods brokerages use for realized gains/losses are average cost for open-end mutual funds and FIFO for everything else. Costing basis can be changed by election in some cases.
I’m not against this idea. But I do want to be consistent. For example, if it would be implemented like that, then it needs to work the same way on revaluation of foreign currencies and perhaps even on calculating cost of goods sold on inventory items.
Specifically inventory has number of unresolved issues which I’m currently diving into.
That is all done via placement of custom control accounts in the COA
Options to calculate capital gains/loss I can think of
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from average of prior purchases excluding that already claimed from prior sales (ie running average)
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As above running average but allow manual override. While this provides flexibility, the risk is users don’t understand what they are doing as manual transaction selection is really only possible before average transactions have been claimed.
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use the same system as is used to pay invoices for a customer/supplier ie oldest first unless user manually selects a different invoice/ investment purchase
The last would be ideal imo but I’m not sure how complex the implementation would be.
Edit
My reading of the ATO is the third approach is required as:
“You may buy parcels of shares in the same company at different times. You need to keep details for each parcel as they are separate CGT assets.” …" If Boris later decides to sell more of his shares in the company, he can choose which of his remaining shares he is selling." https://www.ato.gov.au/individuals-and-families/investments-and-assets/capital-gains-tax/shares-and-similar-investments/keeping-records-of-shares-and-units
Yes please!!
My interpretation of which is most people in Australia would usually like to sell the shares purchased for the highest price first as that minimises their tax payable (or at least defers it). Effectively maximising the unrealised vs realised capital gains.
Edit
Manager is now entering this data in “Investment gains (losses)” not “Investment, revaluation”.
Going forwards could we please have consistency with where “Unrealised gains/losses” vs “Realised gains/loss” are reported.
I am really struggling to understand the Investments system, which has changed without warning.
What is shown on the summary screen; cost price or market value?
What is on the balance sheet and can I show the market value or unrealised capital gain?
The Investment Summary report and Investment Revaluation Worksheet have both disappeared.
It’s not useable in it’s current state
I don’t consider Investments module to be broken.
@dram can you review this guide https://www.manager.io/guides?investments ?
@Patch while it’s true that Investment Gains (Losses) account combines both realized and unrealized gains. It is for the better because there are many calculation methods how to determine the split. So the account simply shows both realized and unrealized gains and there is Realized Investment Gains (Losses) report under Reports tab to show the split based on perpetual weighted average method (in the future I can add more calculation methods to the report without breaking figures on financial statements).
Implementing custom accounts to separately record investment profit or loss upon recognition and realization of every investment would be highly advantageous. These accounts should be selectable from both Real and Nominal account lists, ensuring compliance with reporting regulations and standards. Not every investment is measured through profit or loss; some are measured via equity accounts.
This will be supported by automatic recycling after realization (from the recognition account to the realization account if separate accounts are used for recognition and realization purposes).
@lubos Regarding valuation, I thought investments were marked to market price, or fair value as some call it, before realization and the computation of gains or losses. I don’t see the use of perpetual weighted average in computing profit or loss. Am I missing something?
My mistake, Regardless there has to be some way of calculating cost of investment in determining realization profit of loss.
Which is why Managers version of investments is not functional for an accounting program.
An accounting program must monitor and display
- Actual purchase price (exactly as shown in the business physical bank account)
- Actual sale price (exactly as shown in the business physical bank account)
- Actual profit (loss) when an investment is sold. (exactly as reported to the tax authority and tax is paid on).
This is investment realised gain (Loss). It is an exact fundamental accounting quantity. It is never dependant on hypothetical investor behaviour, only real transactions the investor has actually performed. Failure to primary display an track these real transaction prevents use of Mangers investment implementation by any business reporting to their tax authority.
In contrast some business find it useful to make projections based on what might happen. Profit and loss budgets is an example. Another is an estimate of a business liquidated value at some time point.
An Unrealised gain (loss) can be calculated for an arbitrary period period based on
- An estimate of an investments value at the beginning of the period
- An estimate of an investments value at the end of the period
- The difference in these estimates can be displayed as a hypothetical asset profit (loss)
Such valuations are always an estimation as an actual sale price is no known as the shares were not sold (an activity which would change market price) and real estate was not sold (so it’s actual market price is not known). Such hypothetically calculated profit (loss) is not taxed (except maybe for some people with more than $3M superannuation in Australia but not for other people so must still be separately calculated).
I do not doubt investor like to know their unrealised gains as it is a useful management tool (as are profit and loss budget) but it’s intermittent calculation must have zero effect on reporting of actual transactions (just as profit an loss budgets must be independent or the actual profit and loss figures).
To be honest I can’t see this being fixed in Manager which is why the only current option is to not use the investment tab at all, and do in all manually instead.
@Patch when it comes to Investments module, I’m just being consistent with how other parts of the program are working.
For example, when you maintain foreign currency account, then balance sheet will show market value of that account based on exchange rates. The difference between market value and acquisition cost of the foreign currency will be shown under Currency Gains (Losses) account. And it that will include both realized and unrealized gains.
I see investments the same as I see foreign currencies. Investments have market prices determined by stock market. Foreign currencies have exchange rates determined by forex market.
I came to conclusion that unrealized gains (losses) belong to profit & loss statement. You can always move the account to the bottom of profit & loss statement and have P&L sub-total
- Net profit (loss) before unrealized gains
- Unrealized gains
- Net profit (loss)
Consistency is sensible.
Making investment tab behaviour consistent with fixed asset behaviour makes sense as they are similar things.
Forcing consistency among fundamentally different things is not rewarding.
Foreign currency valuations effects the value of actual transactions which occur. Those transactions have a direct effect on what is reported to the tax authorities.
In contrast
Investment revaluation is an internal tool. The resultant unrealised gains has zero impact on a businesses tax liability.
Actual investment sales always had an impact on a business tax liability.
As a result no business wants to combined Investment realised and unrealised gains (losses).
I’m not at all against Manager’s new method of calculating unrealised gains (losses). Automatic calculation on entering a new Investment market price is really neat. My only issue is combining it in the same accounts as real investment transactions.
Not all unrealised gains (losses) are treated the same in the financial reports, and invariably treated differently to realised gains (losses). It is not reasonable to bulk them all together and treat them all in the same way. The program should be able to report separately the different types of gains(losses) and allow the user to choose how to treat each different type. Until the program can achieve this the current configuration should be removed.
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I decided to throw Chatgpt at it and it is clear that @Lubos seems to only support the treatment of unrealized gains and losses of investments Held-for-Trading Securities (Fair Value through Profit or Loss - FVTPL):
See full answer:
In accounting, unrealized and realized gains and losses from investments are treated differently, reflecting their respective impacts on financial statements. Here’s a detailed breakdown:
Unrealized Gains and Losses
Definition: Unrealized gains or losses are the increases or decreases in the value of an investment that has not yet been sold. These are “paper” gains or losses, as they reflect changes in market value but not actual transactions.
Treatment:
- Held-for-Trading Securities (Fair Value through Profit or Loss - FVTPL):
- Recognition: Unrealized gains and losses are recognized in the income statement.
- Impact: They affect the net income for the period in which the market value changes occur.
- Available-for-Sale Securities (Fair Value through Other Comprehensive Income - FVOCI):
- Recognition: Unrealized gains and losses are recorded in other comprehensive income (OCI) and accumulated in the equity section of the balance sheet under “Accumulated Other Comprehensive Income” (AOCI).
- Impact: They do not affect net income until the investment is sold. Instead, they affect the total comprehensive income.
- Held-to-Maturity Securities:
- Recognition: Unrealized gains and losses are generally not recognized because these securities are reported at amortized cost.
- Impact: They do not impact the financial statements unless there is an impairment.
Realized Gains and Losses
Definition: Realized gains or losses occur when an investment is actually sold. The gain or loss is the difference between the selling price and the book value (cost) of the investment.
Treatment:
- Recognition: Realized gains and losses are recognized in the income statement at the time of sale.
- Realized Gain: If the selling price is higher than the book value, the difference is a realized gain.
- Realized Loss: If the selling price is lower than the book value, the difference is a realized loss.
- Impact:
- Income Statement: Realized gains and losses directly affect net income for the period in which the investment is sold.
- Reclassification: For available-for-sale securities, any accumulated unrealized gain or loss recorded in OCI is reclassified to the income statement upon sale.
Accounting Entries
Unrealized Gains and Losses for Trading Securities (FVTPL):
- Gain:
- Debit: Investment account (increase to market value)
- Credit: Unrealized Gain (Income Statement)
- Loss:
- Debit: Unrealized Loss (Income Statement)
- Credit: Investment account (decrease to market value)
Unrealized Gains and Losses for Available-for-Sale Securities (FVOCI):
- Gain:
- Debit: Investment account (increase to market value)
- Credit: Unrealized Gain (OCI)
- Loss:
- Debit: Unrealized Loss (OCI)
- Credit: Investment account (decrease to market value)
Realized Gains and Losses:
- Gain:
- Debit: Cash (proceeds from sale)
- Credit: Investment account (book value)
- Credit: Realized Gain (Income Statement) - for the difference
- Loss:
- Debit: Cash (proceeds from sale)
- Debit: Realized Loss (Income Statement) - for the difference
- Credit: Investment account (book value)
Example:
Assume an investment purchased for $1,000 is now worth $1,200, but not yet sold:
- Unrealized Gain (FVTPL):
- Debit: Investment $200
- Credit: Unrealized Gain (Income Statement) $200
If the same investment is later sold for $1,250:
- Realized Gain:
- Debit: Cash $1,250
- Credit: Investment $1,200 (new book value after unrealized gain)
- Credit: Realized Gain (Income Statement) $50
This differentiation helps users of financial statements understand the current value of investments and the actual gains or losses realized from investment transactions.
This is how inventory is working. By creating new inventory valuation, those unrealised gains/losses go to the inventory expense account and when the item is sold Inventory item is credited with the current unit cost price*qty and the remaining amount whether profit or loss goes to the P&L statement and retained earnings.
The best method would be is to treat Investments like Inventory and have an Investment Revaluation Worksheet (Just like Inventory revaluation) but with multiple valuation methods, like valuation on Cost Basis (Avg/FIFO/LIFO) and market value. This way if someone is not interested in unrealized gains they can value their investments at cost and later on they can have all the realized gains/losses once those investments are sold.
Don’t know if this method could be applied to Foreign currency gains/losses as qty is not involved in that. If some variation of this is possible then for currency we can also have both realized and unrealized gains/losses.
@Lubos treatment is not wrong but it only covers investments held for trading Ishort-term) and that those available for sale (medium term) are to be treated differently. Both also differently then held for maturity. See also:
So a single investment tab may not do justice or it does justice but with the explanation that it is for trading securities / investments.
I think Currency gains (losses) or Investment gains (losses) could be shown under Equity as:
- Currency revaluation
- Investment revaluation
Then profit & loss statement would not contain gains / losses accounts unless you make a manual entry to account for realized gains / losses.
The realized figures can be obtained from reports that can support multiple calculation methods so you can always choose the method that you prefer.