Market Adjustment for Shares

I’ve read several threads now about how people are using manager to track shares and I’ve started to do this too. I’m only dabbling on a very small scale at the moment and am in the market for short term gains (and hopefully no losses—otherwise, then I’m an investor ;P).

I understand and I think I would prefer to treat them as an asset and the purchase of the shares is easy (except I was conflicted whether to create an expense account for brokerage, or treat it like an inventory item that has additional shipping charged where you create a line item for the inventory and add the cost without a quantity so that it can be averaged in across the entire stock). Since I brought this up there, any comments on that would be appreciated (for the moment, I have created a separate expense item—I think that works best)

So I have created an asset account for it: Shares.

However since the market fluctuates and the unrealised value of these shares can change, how can I have it reflect a more accurate value? I’ve seen “Market Adjustment” used, and have create an asset account along side it, but how to make the actual entry? I don’t necessarily want to update it every day, but once in a while (possibly month ending) it would be interesting to see the net effect of the shares reflected in the balance sheet.

I tried going through Journal Entries, but it doesn’t balance and I don’t think I could create a P&L income/expense item for it, since the value is unrealised until traded back to cash.



Treat it like inventory, as its a cost of holding the asset.

You should be using the Inventory tab and recording each share market purchase as an inventory item, then when they are sold there will be an automatic transfer of the P&L. Rename the Inventory-on-hand account to “Stock Market - Acquisitions”

You create an Asset account called “Stock Holdings - Market Value Adjustment” which would sit just under the re-named “Stock Market - Acquisitions”

You also create an Equity account called “Stock Holdings - Revaluation”. Then you Journal the market movement between these two accounts.

Have you read this thread which contains a model of a Chart of Accounts set up.

@Brucanna I knew you’d jump in. Thanks.

Yes I did initially review that thread but got overwhelmed by it, although after re-reading it a few more times it starting to sink in.

Having not done an end of year yet and covering actual asset revaluations and depreciation, I’m just not understanding the concept of the journal entry on it.

TBH, I was trying to run the stock trades within the business in manager, but I’m thinking of treating it separately now (ie two different businesses).

On that page you linked, you have an asset account of stock holdings, market adjusted. In this “inventory” model, how do you actually apply the market adjustment? I realise it’s going to be the difference (positive or negative) from the value that you purchased it, but to/from what P&L account do you attribute that value? ie how do you get the journal to balance?

That would be a positive first step, as asset trading/investing doesn’t fit naturally within the “normal” business structure.

Happy to dissect it and provide responses to specific aspects.

[quote=“d3mad, post:3, topic:8713”]
Having not done an end of year yet and covering actual asset revaluations and depreciation, [/quote]

You don’t actually do a revaluation or depreciation as such (which sounds rather complex), you just take up a factor which equals the variation (positive or negative) between the actual cost and the market valuation on any particular day. E.G. you spend 20,000 acquiring various stocks, tomorrow they could be worth 18,000 or 22,000, so the take up factor will be either -2,000 or + 2,000.

Via a Journal using “Stock Holdings - Market Value Adjustment” & “Stock Holdings - Revaluation”

Equity = worth, so if the market value has gone up 2000, then your worth has also gone up or conversely.

in your closing sections you’re referring to stock as their total value. eg, acquire 20K, then worth 18/22K (arbitrary). And so the journalling is for +/-2K.

  1. I think this is probably just a really minor/trivial point, and probably doesn’t matter, but my initial thought was instead of purchasing a block of shares for 20K, I would have purchased Qty 2000 shares at $10… (whereas I’m assuming your inventory was probably a block of 1 share at 20K?)
  2. I see you’ve previously mentioned that if you buy more of the same stock at say $11, that you would treat it as a new inventory item. Why not have it be a re-purchase of more inventory at a greater price, say another Qty2000 at $11 whereby the average would be 4K shares @$10.50
  3. I will break out all the share transactions of the business and run it separately, I do like that idea just so that a mistake in one won’t cruel the other. Would I treat the moneies out of the business as a spend to an external account (being the investment account), therefore showing “Spend Money” and create a supplier/customer for my investment side?

I’m loading up a test case now for transactions as inventory


No, the inventory could be 6 or 14 different stocks purchased either on the one day or over 5 months.
For this model at some point in time the total acquisition (Spend Money) for the various stock equalled 20k, at a subsequent date after these purchases the market value was 18/22, therefore the adjustment is +/-2K for the portfolio.

That is a personal choice - you can record either individual / accumulative inventory holdings, but one thing you need to consider is the taxation impact on potential future trades. (eg ignoring brokerage)

Say you purchase BHP at 1000 for 2.00 (2000) then the price drops to1.50 and you purchased another 1000.(1500). If you amalgamate the purchases you have 2000 at 3500 or 1.75 ea.

Now the price rises to 2.00 and you wanted to sell 1000 (within 12 months), under individual holding you could sell those purchased for 2.00 - a breakeven no tax, but under accumulative you would be making a taxable profit of 250 (0.25 per stock) and spending a proportion of that on tax.

Now, in your jurisdiction, stocks held for over 12 months are capital gains taxed instead of income taxed. Therefore, selling the remaining 1000 @ 3.00 would be on an individual basis a profit of 1500 but only 50% taxable (750), whereas on an accumulative basis the profit would be 1250 at 50% taxable (625) + the previous profit (250) for a total of 875 (v’s 750). These are only small figures but are an example of taxation impact.

Yes. I would always recommend that funds allocated for investing be conducted via a separate financial account. For the parent business providing the funds it would be a Spend Money with the Account being a BS Asset account called “Share Investments”. For the child business getting the funds it would be a Receive Money with the Account being a BS Liability account called “Paren.t Funding”

There are no Supplier or Customer relationships as there are no invoicing involvement…

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Excellent answer @Brucanna, I actually understand all of that.

The only upset being that I was happy with the accumulative approach, but now that I’ve read your example, I know that I want it to be recorded individually (at least, I think I do… I’ll be discussing this more with my accountant in the coming weeks).

At any rate, the ATO only allows for FIFO since averaging is only available if the shares were bought on the same day (unless you can track the individual share certificates)

So individual tracking it is :slight_smile:

Actually, I just want to go back to this part:

  1. Do you do that on the basis of recalculating since initial purchase and today’s price (ie delete the old entry and create a new one, or alternatively simply keep re-editing the entry), or
  2. Keep a running tally of changes, ie at the end of month 1, shares up 3%, month 2, down 1% etc

I think I’d prefer the simplicity of 1.

No, it doesn’t, below is a quotation from the ATO link that you provided - FIFO is an alternate method to be used if you can’t identify which particular shares you have disposed of. But more particularly - read the sentence in bold

"If you have the relevant records (for example, share certificates), you may be able to identify which particular shares or units you have disposed of. In other cases, the Commissioner will accept your selection of the identity of shares disposed of.

Alternatively, you may wish to use a ‘first in, first out’ basis where you treat the first shares or units you bought as being the first you disposed of."

Therefore the use of individual inventory items would greatly assist with that identification - tax planning.

Not by recalculating, but by using the broker’s valuation of your portfolio which is based on latest prices

Yes, by changing the date and the values

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I don’t know how many times I’ve read that ATO page. I have wound up on there several times over the last few weeks. I have totally missed that (I would say because the start of that paragraph refers to the share certificates and I’ve moved onto the next paragraph). Not sure, but thanks for that. And it does make perfect sense to use individual inventory items.

The rest, got it… mucho appreciated.