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RE: recording entries for a cash and scrip takeover

MySF2 — Wed, 11 Mar 2009 15:54:00 GMT

Hi,

You can change the cost base of assets through System Setup > View and Edit Cost Base. This will show you the current cost base (as per the asset record) and the suggested cost base (as per the balance of the account representing the asset). You can change and update the cost base through this screen.

Please note that changing the cost base of an asset through this screen will not change the balance of the accounts.

Regards,

MySF

RE: recording entries for a cash and scrip takeover

scott — Wed, 11 Mar 2009 02:17:11 GMT

The sale is in the next tax year so my problem is getting the correct unrealised gain for 30 June. My accountant has given me some numbers to correct things through the journal so that I have the right holding costs but I'm unsure where I go to make sure the right cost base is recorded against each separate line of stock. I don't think I can go through view and edit sale records if I still own the stock on 30 June. Where do I make the adjustments?

RE: recording entries for a cash and scrip takeover

MySF2 — Thu, 05 Mar 2009 19:57:55 GMT

Hi Scott,

Thank you for the extra information.

Unfortunately it is almost impossible to unwind everything that has happened with the mix of sales, followed by rollover and then more sales.

Instead, it may be easier to manually change the capital gain calculated on the subsequent sale, if that is what is making your accountant unhappy. This can be done by journaling some of the capital gain from non-taxable to taxable and also changing the affected sale records through Housekeeping > Utilities > View and Edit Sale records.

Please let us know if the above helps.

Regards,

MySF

RE: recording entries for a cash and scrip takeover

scott — Wed, 04 Mar 2009 02:22:35 GMT

Maybe I haven't been clear enough. The stock that has been bid for was not originally acquired in the one line. It was made up of 5 purchases over time. When I sell the stock the system gets me to allocate the sale against those individual purchases. My accountant is grumpy because I have allocated against 2 lines and rolled the other 3. I think I need to unwind what I have done and then go back and sell the same proportion from each line and roll the remainder. How do I do that given I have subsequently sold the new stock albeit in the next tax year?

Regards

RE: recording entries for a cash and scrip takeover

MySF2 — Mon, 02 Mar 2009 15:48:45 GMT

Hi Scott,

Your accountant is right and that is also what will happen from processing the information as detailed above.

The proceeds of the sale (cash component) will be taxable. The amount of the asset left over and rolled over in the scrip for scrip represents 81.13% of the original asset and therefore 81.13% of the original cost base. Note that if you allocated the units within the sale in a way that is other than proportional to the holding within each share parcel then the latter figure may be slightly different. If you only had one parcel then it will always be exactly 81.13%.

The scrip for scrip rollover itself does not generate any entries to cash, does not result in any kind of income being recorded and therefore, in and of itself this event does not have any effect on the profit and loss of the fund.

If you later sell the assets you received from the scrip for scrip rollover then that is a different event. The capital gain will be calculated from the 81.13% mentioned above and the applicability of capital gains discounts will depend on the purchase date of the original asset as that is carried over with the scrip for scrip.

Hope this helps.

Regards,

MySF

RE: recording entries for a cash and scrip takeover

scott — Mon, 02 Mar 2009 01:07:43 GMT

Hi,

My accountant is not happy with the approach of applying the cash consideration to one part of my holding and the scrip to another. He says its a mixed consideration. He says I need to carry 81.13% of the cost base of the old shares as the cost base of the new shares. He says that as I have exercised my right to rollover relief "the only part of the sale that results in a taxable gain is that part attributable to the cash component". Your process had me apply cash to part of my holding and rollover relief to the rest. I need to keep my accountant happy!

1)How do I undo the the transaction as you had set out and do I need to do anything special as I have subsequently sold 100% of the new security.

2) How should I enter the transaction to achieve the outcome my accountant is looking for?

Regards

RE: recording entries for a cash and scrip takeover

scott — Fri, 07 Sep 2007 03:19:36 GMT

Thanks very much. That worked well enough for me. You're right about the loss rather a gain. I told you I was dumb.

Regards

RE: recording entries for a cash and scrip takeover

MySF2 — Thu, 06 Sep 2007 17:45:53 GMT

Hi,

The sequence of events to follow in this case is a sale and then a scrip for scrip rollover, as outlined below.

[b][u]1) Sale[/u][/b] of 18.87% of current holding for a total consideration of $0.15 per unit of the total number of units currently held. (Process the sale using Manage Fund > Sell Assets > Shares screen as normal. Enter the sale date as the date of the rollover)

Using the figures from your post this means that you would need to sell 18,870 units of the target stock for a total of $ 15,000 which is $ 0.794913 per unit. If the cost base of the original stock was $0.85 per unit then this is a capital [u]loss[/u] of $ 1,039.74. Your post mentions a capital gain, but this is not the case because the amount received per unit is less than the cost base of the units being sold.

[b][u]2) Scrip for Scrip rollover[/u][/b] from the remaining units in the target stock to the bidder stock. (Process the rollover using the Housekeeping > Utilities > Scrip for Scrip Rollover screen)

Select the target stock and enter the date as the date of the rollover. Enter the total number of units received, which in this case is 50,000 and type in the details of the new stock.

The total cost base of the new units will be 81.13% of the total cost base of the original units held in the target stock, as that is what remains after the sale above.

New assets created via the scrip for scrip rollover (bidder) will retain the purchase date of the original asset (target) meaning that they will be treated accordingly in capital gains calculations and the application if capital gains discounts.

Please let us know if you would like any additional information or assistance.

Regards,

MySF

RE: recording entries for a cash and scrip takeover

scott — Thu, 06 Sep 2007 04:21:21 GMT

Thanks for your quick response. You really are a great help desk.

There are no ATO special considerations to take into account. It's just a simple cash and scrip bid but I need help recording properly.

Regards

RE: recording entries for a cash and scrip takeover

MySF2 — Wed, 05 Sep 2007 23:56:48 GMT

Scott,

We are working on this and will post a step by step solution tomorrow (Friday) morning.

Are you aware of any special ATO rulings that apply in this case? That can sometimes impact on the procedure required.

Regards,

MySF

recording entries for a cash and scrip takeover

scott — Wed, 05 Sep 2007 04:58:16 GMT

Hi,

Would you mind stepping me through a cash and scrip takeover please? For simpicity lets say the terms are 0.5 bidder company shares plus 15 cents cash for 1 target company share. The share price of the bidder stock on the effective date is $1.29 and the entry into the target stock was at an average 85 cents.

If there were 100,000 target shares held ,then the shareholder receives 50,000 new shares at $1.29 ($64500) plus $15000 cash component. 18.87% of the consideration is paid in cash and consequently 81.13% is scrip which gets rollover relief. The offer document says I will need to apportion the original cost base between the two components. That should mean a capital gain will arise on the cash component of $1039.50 (100000 shares x 18.87% x 85 cents = $16039.50 less the $15000) and the new 50,000 shares will have a cost base of $68960.50 (81.13% x 85 cents x 100,000). The two numbers add up to the original cost base so I think I'm doing that bit right on paper.

I'm too dumb to work out how to record this so I would appreciate your help.

Regards