How to record a merger in an investment account
How do you record a merger of two companies in an investment account? I don't want to record a sale of the "old" company and a buy of the "new" as that would generate an erroneous capital gain and set the wrong acquisition date (and holding period) for the "new" company. For example, Kraft Foods merged with Heinz on 7/6/2015. If you owned either, you now own the same number of shares of the new Kraft Heinz Company. For record keeping purposes, it's just a name change. How can this be recorded in Moneydance so that the acquisition date, acquisition cost and price history of the "old" company carries over to the "new" company?
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1 Posted by Tom Freeman on 23 Oct, 2015 10:31 PM
This is difficult in that the Kraft Heinz company is a new security with a new ticker and unique ID.
You should have received some indication from your broker as to how they handled the merger. Usually this is a sale of the old security at cost basis and a buy into the new security at the cost basis. And yes, you do lose you old transaction history. The important part is retention of cost basis.
The steps are similar to a stock spin off as listed in this FAQ:
http://help.infinitekind.com/kb/investments/how-to-account-for-a-st...
Tom Freeman
Infinite Kind Support
2 Posted by dwg on 24 Oct, 2015 08:09 AM
Tom,
For information, in Australia, this is only one of the ways company mergers can be dealt with. It generates a capital gains event in the year of receipt and thus has to be dealt with as far as Taxation goes.
To record a sale at the cost price and then a purchase at this same cost price creates other issues. The original purchase date along with a (real) sale date determines how a capital gain is to be dealt with and also importantly how to calculate the gain and thus how much tax is payable.
We have here what is called capital gains rollover relief – so it defers capital gains until you really sell the securities.
How it works is there is a stock for stock issue – like a stock swap, it may be on a 1 for 1 basis but it could also be and is more likely to be on a different basis, so there could also effectively be a stock split involved, the original cost is preserved along with the original purchase date but the cost per share could be different as happens with a stock split.
So handling this as a sale and a purchase loses required detail, it also loses the original lot information, unless you enter multiple purchases to represent each lot but you need to manually calculate the number of shares assuming it is not on a 1 for 1 basis.
Really this type of event is something that MD should be handling for the user.
FWIW Quicken does handle it correctly it also copies price history to the new security if desired.
Des
3 Posted by Pat Jones on 31 Oct, 2015 05:21 PM
Tom,
I read the instructions on recording spin-offs previously. This is not an appropriate way to record such transactions. You indicate that, “you should have received some indication from your broker as to how they handled the merger.” Well, that would be a memo entry only. That’s it and that’s the normal practice on a brokerage statement. You say that, “usually this is a sale of the old security at cost basis and a buy into the new security at cost basis.” This is not correct. There is never a buy or sell shown on a brokerage statement in such a situation. There are a number of different types of situations involving investments in equities (such as mergers, spin-offs, stock splits and stock dividends) that cannot be appropriately accounted for using the transaction types that Moneydance presently offers. Recording a sale and a purchase is not an appropriate way to record such transactions. Trying to back into these things with sales and purchase transactions creates a mess. Des is correct that this losses key data, especially the holding period. It also wreaks havoc with rate of return calculations. These transaction types need to be provided for within the software in order to have something which truly addresses the accounting needs of individual investors. By the way, I am a CPA and have been an individual investor for over 30 years. I used Quicken (Windows) for many years and it does handle these transactions. Since Intuit doesn’t really support Apple OS, I have been giving Moneydance a try. Although a good product in many respects, this is one area where it falls short. Thanks for listening.
System closed this discussion on 19 Mar, 2016 04:59 AM.