Share buyout with Cash Considersation and Shares

Elliot's Avatar

Elliot

20 May, 2019 09:53 PM

Hi,

On Moneydance, how would I account for a company being bought out with cash being offered for shares as well as shares in the new company?

I.e. for every share you have in the original company you get £5 and 0.25 shares in the new company?

Can't seem to work this out on Moneydance

  1. 1 Posted by dwg on 20 May, 2019 10:33 PM

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    I'm a fellow user.

    I'll start by saying it is not pretty. There are various factors at play to be able to record it correctly.

    With Moneydance there is currently no stock for stock transaction, nor a Return of Capital transaction which could be used to handle such a situation, so it is necessary to use Sell and Buy transactions as a basis, but how to process this also depends on if you use or need to use lot matching in your country (some tax situations demand its use) whether you have a capital gains tax and if so does this transaction attract this or if there is capital gains roll over relieve available. Countries often have very specific ways of handling such transactions.

    At a very basic level in MD you sell your current shares, transfer the funds out that you receive and use the remaining funds to buy the replacement shares.

    You need though to know the details I have mentioned to work out what actual numbers to use and what specific transactions you need

  2. 2 Posted by Elliot on 28 May, 2019 09:23 PM

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    I am in the UK so I believe capital gains tax will be payable on the cash received immediately and on the profit when the new shares end up being sold based on those. How would I account for that capital gains in Moneydance?

  3. 3 Posted by dwg on 28 May, 2019 09:57 PM

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    CGT is normally taxed on the difference between the cost of shares + fees and the sale Price less fees, so taxes based on a cash component received does not appear correct in this context, generally if a cash component is taxed in itself it is because it has been declared to be a dividend so that creates a different taxing methodology in some countries.

    When there is a company acquisition I expect to see a document produced outlining the transactions, of course if it is a public company being taken over the document outlines all the information needed for shareholders to vote on.

    The document I would expect outlines the consideration to be received by shareholders both in terms of a total price but also in structure (5 pounds + 0.25 shares) and even taxation considerations for the individual investor.

    So the fiver could be a capital return (deferred taxation) it could be a dividend (an income event in the current year) or it could be irrelevant from a taxation perspective because the transaction is considered to be a total sale of the old security followed by a purchase of the new and the total cash value of what is received and the cost basis is what the CGT calculation is based on.

  4. 4 Posted by Elliot on 29 May, 2019 01:57 PM

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    It's charged as a capital gain in the UK. You have to work out the value of the cash in proportion to the total value of the cash and shares you get. Then you split the cost of your original shares between the cash and the new shares in the same proportion as the value.

    https://www.gov.uk/guidance/capital-gains-tax-share-reorganisation-takeover-or-merger

    Is there any way to factor this into MD?

  5. 5 Posted by dwg on 29 May, 2019 10:05 PM

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    I'm a fellow user.

    And I thought the Australian Taxation Office was the only one to come up with interesting and convoluted ways of working things out. Looks like tax officials might all go to the same training school :)

    It looks like depending on the amount you either have full or partial CGT roll over relief. Moneydance can calculate simple capital gains, but not ones that involve decision making based on the data and then some calculations based on various pieces of data, Calculating CGT on gains in Australia can be more complex than the examples given in your pointer as dates are involved and also in some instances you can elect to use different methods of calculating the gain, even software made for the local market avoids giving anything more than raw data for CG.

    From my reading of the examples given in Moneydance you would do a sale of your existing shares at the cost price, transfer the amount of the returned amount to whatever bank account it went to thus leaving a residual balance. The residual balance is the total cost price of the replacement shares, so dividing this by the total number of shares received gives the cost price per share, using this data you can do a Buy transaction for the new shares. The acquisition date of the new shares is actually the date of purchase of the shares in the original company whether this is significant in the UK I do not know (it is here) but you cannot really use it as the transaction date, I note the date in the Memo or even the Taxation date field - I have had some discussions with Sean about using the Tax Date more in investment reports to help with reporting certain types of transactions.

    The actual gain that is taxable is something you will have to work out. If you wanted to show this number in Moneydance reports it is possible to do so, but it is not something that MD can calculate for you.

  6. 6 Posted by Elliot on 24 Jun, 2019 07:58 PM

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    Right, so I have finally got round to doing this! Thank you for your help.

    Now what's the best place to show the capital gain in Moneydance if I've calculated it?

  7. 7 Posted by dwg on 24 Jun, 2019 09:36 PM

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    I'm a fellow user.

    As it stands Moneydance provides a simple standalone report for capital gains, and as I said earlier capital gains here are much more complex than this report could hope to show, hence I use the raw data that I have in Moneydance and initially work the raw gain out for an investment in a spreadsheet applying the rules we use.

    I have a couple of memorized reports set up for taxation usage which reflects taxation categories and I use Moneydance to record and report on these individual items as well as the aggregates, but Capital gains are not included. Mutual fund distributions are also in themselves not suitable for taxation reporting either, so I have data from these I would also like to include in my tax reports. I did consider using the MD report as an input into external reporting but really wanted to consolidate my reporting as much as possible and my preference is to do this within MD.

    My solution to this was to set up the required income categories that reflect taxation reporting and in the structure I wanted. I then created a expense category called Tax:Investment Reporting .

    Now I have these numbers from capital gains and other investment returns that should not be reflected in any account balance - specifically because they are included in other transactions but I want them in an Income and Expense report itemised.

    Using the categories I created above I place entries in the applicable account i.e. if I say have a capital gain I want reported I place it in the register of that investment. I enter the "transaction" as a DivXfr the category is the one I want it in on the report and in the transfer field I use the Tax:Investment Reporting category for the entry. What I have is effectively a not for value entry that does not change the balance in any account but is reportable.

    The bulk of data needed in thus in Moneydance and is reported in a couple of I&E reports. I have to do some post processing on the capital gains but the MD data contains the raw aggregates needed and there I do have a Spreadsheet I just dump this data into to make the necessary calculations.

  8. 8 Posted by Elliot on 24 Jun, 2019 09:43 PM

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    Wow dwg! You are a better man than I am. It's such a shame that this has to be such a lengthy workaround, but I appreciate as discussed capital gains are much more complex thing which differs per country.

    So these transactions all have an amount of £0.00 but just with a note on how much they should equate to, or have you managed to enter actual transaction amounts which wouldn't impact the overall balance of another account?

  9. 9 Posted by dwg on 24 Jun, 2019 10:38 PM

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    The transactions all have amounts but because of the DivXfr transaction being between categories they do not impact on any account balances. If they were at a real zero value you could not report on them.

    The method achieves the objective of being able to report on them for value but yet do not change any account balances.

    Many financial packages would not allow you to do what has been done here, so you would be forced to take their output and do work elsewhere. Capital gains are often not simply a sale minus purchase calculation and other investment distributions are often a bulk amount that comprises a number of underlying amounts spread across categories; Dividends, interest, trust distributions, foreign income, capital returns etc and at least here you do not find out the split until you receive an end of year tax report from the entity, additionally some items are taxed on a Receipts basis and some on an accumulation basis so could be for different tax years (It is not as hard as it sounds).

    Quicken/Reckon would not let me to enter these but with Moneydance exposing the underlying accounts & categories and being based on accounting rules I can use some simple accounting techniques to achieve what I want. Overall I have a more contained system than what I used to have with Reckon in this respect without the need to use a full blown accounting package, which I think would be overkill and far more work, so I have pushed MD a little bit beyond strictly Personal Financial Management.

    Don't get me wrong Moneydance is not perfect by a long stretch, it is lacking a few key Investment transaction/action types that would decrease the amount I have to do in maintaining raw data, but its flexibility in this specific space is something I have exploited and I am happy with the results.

    I spend more time now checking to make sure I have included everything in MD and entered the numbers right rather than pulling the data from whatever software, systems and various documents into something else. With MD a lot of the activity is in duplicating the transactions from the previous year and changing the date and amount, rather then entering a completely new transaction. With a new investment if I'm really lazy I may duplicate the transaction in another account use batch change to move it then just change date and amount thus ensuring the right transaction structure without having to think about it.

    At the reporting level I'm not hopeful of any software being able to handle everything, unless it is specifically written for that country AND the data entered into it is suitable. In Australia at least I know the basic data you enter is not suitable, unless there is a way of entering additional information, as I have done here.

    Sorry about the long winded response I felt it necessary to outline how I do not think Financial management software is geared towards a complete solution most of the time, in reality most programs go only part of the way.

  10. 10 Posted by Elliot on 24 Jun, 2019 10:41 PM

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    No it’s not too long winded at all. Really appreciate the time you’ve taken
    to explain everything to me and it has definitely helped. Thank you for all
    the help!

  11. System closed this discussion on 23 Sep, 2019 10:50 PM.

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