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Switching to ACB from FIFO

General questions about using Fund Manager that do not fit into any other forum.

Postby ThomasK » Tue Dec 15, 2015 7:39 am

I've been happily calculating my reports based on FIFO but my new accountant says she wants to see performance calculated by ACB Average Cost Basis.

The Help Files say once you pick it not to change it (I'm guessing that is for getting clean performance results) but in my case I must change. And I don't want to make a change in FM and "think" it is calculating ACB when in fact it is still stuck on FIFO...

So, the only way I can see how to switch from FIFO to ACB is to do it investment by investment via Investment Properties > Other > Accounting Method: pull down...yes?

Perhaps there is a better way? Perhaps via Portfolio Properties that can over-ride the individual stock settings in one go? I might have this wrong but it is not the symbol but the account that is the issue for how things are taxed and thus calculated? I see the "Tax Free" box in Portfolio Properties", perhaps an idea would be to have FIFO/ACB (even Wash Sales Rule) on that window?

Thanks,
Thomas K
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Postby Mark » Tue Dec 15, 2015 7:57 am

Hi Thomas,

The accounting method attribute is an investment level property. You could have a portfolio where not all your investments use the same accounting method.

The accounting method can change your taxable gain/loss on any particular transaction, but it doesn't affect performance metrics like ROI yield.

The reason the online help mentions not changing your accounting method is that once you start reporting taxable gains/losses using a particular accounting method, you can't change mid-stream. You would end up reporting an incorrect total gain/loss once the whole investment has been sold. If you look at the overall gain/loss once an investment is completely sold, all 3 accounting methods will give you the same total gain/loss. The timing of when gains/losses are realized may change slightly for the 3 different methods, but the total will end up being the same, as long as you keep the same accounting method for the life of the investment.

If you want to run "what-if" scenarios you can force Fund Manager to use a particular accounting method in either the Capital Gains or Open Lots reports. See the "Accounting Method" drop-down in the Report Settings dialog. The default is "Assigned Investment Property", but you could set it to use any accounting method you want. In this case, the assigned investment property for accounting method will be ignored.
Thanks,
Mark
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Postby ThomasK » Tue Dec 15, 2015 9:16 am

Great, thanks Mark.

Yes, I've been doing it with FIFO but handing my records to a bookkeeper/accountant where they have always simply used the brokerage source documents and ignored my work.

With my new accountant, I just have to get FundManager's Report to her to match her output and next year my Report would suffice. As such, I'm in Canada and ACB is the way to go. Right now I need to use Wash Sale but in a few years I can switch to full time trading and ignore Wash Sale rules...but if I get the Report right, all is good either way. So I'm re-jigging Fund Manager, hence the flurry of posts!

Thomas
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Postby Chris » Mon Dec 21, 2015 3:18 am

I was under the impression that Fund Manager didn't support ACB (adjusted cost base), only the reporting types permitted in the US (FIFO, average cost, and specific lots, etc.). Am I wrong about this?

ACB is a peculiarly Canadian way of reporting. It would be nice if Fund Manager did support it though... there is literally no piece of commercial software I'm aware of that supports ACB, apart from a couple of websites (AdjustedCostBase.ca, etc.) and the close to defunct Canadian version of Quicken.
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Postby Mark » Mon Dec 21, 2015 8:52 am

Hi Chris,

You're right, Fund Manager only supports:

First In First Out
Average Cost
Specific Lot

I was answering, assuming ThomasK was referring to the "Average Cost" accounting method when he was mentioning ACB. In any case, once you start reporting tax gains/losses using a particular accounting method, you should stick with that same accounting method for the life of that investment.
Thanks,
Mark
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Postby ThomasK » Thu Feb 25, 2016 11:10 am

Hi Mark, Hi Chris,

Is not Fund Manager's "Average Cost" equivalent to the CRA's "Adjusted Cost Basis"? I went through a detailed discussion with a rep from CRA and it seems to me to be the same IFF Fund Manager adds capital losses BACK into the Average Cost, then the two methods are the same, just different wording.

Please chime in what I'm missing!

I reviewed the IRS definitions and CRA definitions and FM's definitions...to that end, Mark, it would help immensely with a complex Average Cost calculation...I didn't see any in the Online Help, could you do one here?

Thanks,
ThomasK
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Postby Mark » Thu Feb 25, 2016 11:14 am

Hi ThomasK,

I'm not sure if they are the same. The Average Cost calculated by Fund Manager is described here:

https://www.fundmanagersoftware.com/help/def_avg.html

For a complete example calculation using this method, you might try a Google search for:

Average Cost Single Category Method

We can also try to add a detailed example into the online help in the future.
Thanks,
Mark
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Postby ThomasK » Thu Feb 25, 2016 11:42 am

Thanks,
Yes, I read that -- and CRA's website has NO calculation or even a decent description.

I had my own excel spreadsheet for ACB calculations years ago...I'll see if I find it and check FM's output under Average Cost. I'll let you know what I find but I'm pretty sure they will have the same output.

The results from google don't seem to have a comprehensive answer, ie tracking purchases, sales, more purchases and eventually a sell. That would be a good thing to show in the Online Help files. Again, I'll let you know if CRA's ACB = Average Cost in Fund Manager. Still, even if it did not, EVENTUALLY they get all the taxes anyway...

TK
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Postby pburton » Sat Mar 18, 2023 4:58 pm

I'm searching the site looking for adjusted cost base information (Canadian) and found this thread. I know this is an old thread, but I'm looking for the adjusted cost base calculation in FundManager and didn't see it. Has it been added since this thread was written?

My scenario is that ETFs will report Capital Gains Dividends and reinvest them such that there are zero additional shares. This results in a change to the adjusted cost base. These types of transactions always show in pairs on my brokerage statements.

An example would be:
Transaction 1: Capital Gains Dividend, VXC (Vanguard FTSE Global All ETF), Amount $X
Transaction 2: Dividend Reinvestment, VXC, Amount -$X

I don't currently record these transactions in FundManager because they didn't appear to have any impact and I couldn't find the right mechanism to record the transaction. Now that I sold one of these investments in a non-registered account, I am now facing the task of calculating my ACB and I now realize I need these transactions represented.

Regular dividend distributions are not reinvested and I just record those as dividends in Fund Manager.

Any idea how I should enter these pairs of transactions and is there any plan for FundManager to calculate ACB for Canada?

Thanks
Paul
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Postby Mark » Sun Mar 19, 2023 10:22 am

Hi Paul,

Fund Manager will adjust your basis when you record reinvestments. Nothing about this has changed since this thread started. Reinvesting adjusts your basis by increasing the taxable cost basis by the amount of the reinvestment.

If you have a case where you reinvested a distribution for $X but ended up with the same number of shares as before, you can record this with a combination of a reinvestment, plus a split. You would need to decide how many shares you want to attribute to the reinvestment if that isn't given, but one reasonable way to decide would be to divide the amount of the dividend by the pre-dividend price per share.

For example, let's say you had 100 shares of a fund trading at $50 share, and you received a $75 dividend that was reinvested, and you still ended up with 100 shares.

Reinvested dividend: $75 for 1.5 shares at a price of $50
Split: ratio of 101.5 for 100

The 1.5 shares is from $75 dividend / $50 price per share. With these transactions you will have increased your taxable cost basis by $75, and you will still end up with 100 shares. The split ratio is determined by how many shares you start with, and how many you want to end up with.
Thanks,
Mark
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