Investment Revaluation tab

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.

  • 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 .

  • 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:

  1. Available for Sale Securities. Unrealized gains/losses are reported on the balance sheet.
  2. Trading Securities. Unrealized gains/losses are reported on the income statement.
  3. 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

  • from average of prior purchases excluding that already claimed from prior sales (ie running average)

  • 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.

  • 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.