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Handling Spin off for a stock

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Bob B

13 Jul, 2021 11:56 PM

There is no good way to handle a stock spin off in MD. I've read the forum suggestions and they don't work very well, they either show a capital gain on the spin off date or the historical valuation of the stock is incorrect.

I'd like to suggest a new investment transaction types:

Disbursement - allows a change in the cost basis effective on a particular date without selling any shares. The amount of the disbursement does not add cash to the account (although it would be acceptable to allocate it to a category).

If it was allocated to a category, the spin company could use that category for a buyXfr of the new shares. If the user does the calculation of the disbursement correctly based on the amounts recorded on the original company website, the 'spin off' category would end up with a zero balance. An elegant solution to a vexing problem.

I realize that modifying the cost basis on the spin off date would involve work but it would make MD much more correct for tracking investments.

1. 1 Posted by dwg on 14 Jul, 2021 12:07 AM

   

   Just for the record in the financial world this is referred to as a Return of Capital or RoC for short.

   Yes Moneydance desperately need this transaction type.

   I do not have any problem with it adding cash to the account, since it can then be transferred out. It would be my preference to actually add cash to the account since RoC transactions are used for more than just spinoffs. With double entry accounting the reduction in the value of stock in terms of cost base has to be accounted for in a rise in a value elsewhere.

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2. 2 Posted by Bob B on 14 Jul, 2021 03:41 PM

   

   Thanks for the info and I do agree with adding cash to the account to allow for other kinds of RoC. Hey MD, if you do this, perhaps two types: Return of Capital, Return of Capital Xfr :)

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3. 3 Posted by Bob B on 18 Sep, 2021 04:49 PM

   

   I think I have a workable work-around for the lack of Return of Capital for a spin-off type transaction that does not generate a capital gains and keeps the history intact.

   This works when the cost basis is averaged (not for lot based).

   On the date of the spin-off, create a sell tx for the original company, make the shares sold = 0 and add a FEE (I created a category for this 'spin-off' for the tx equal to the amount of the return of capital. This reduces the cost basis of the original stock without affecting history or creating a capital gains.

   For the new spin-off company, create a buyXrf tx and buy the correct number of shares and transfer the full amount of the FEE above. This creates the new stock with the correct valuation and cost basis.

   Seems to work OK in my tests. Can anyone see any issues?

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4. 4 Posted by dwg on 18 Sep, 2021 08:37 PM

   

   Yes many of us use a sell with a zero number of shares and a $ amount for the return. This shows correctly in some places but not in others so it is not perfect and as you have noted only works when using Average Cost.

   I do not understand the use of Fee in this instances. I would expect that the amount of the RoC is what is used to "purchase" the shares in the spin off company as this is what I expect should be the cost basis of these shares. I would not expect to have to use a category for this transaction as the capital should just be a transfer between the investments.

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5. 5 Posted by Bob B on 27 Sep, 2021 04:35 PM

   

   If you use the sell function, that shows as a capital gain or loss. Using a fee category for the transfer amount does not cause a capital gain or loss and reduces the cost basis appropriately on the appropriate date. they I use a buy transfer (from that category) to buy the new security for the transfer amount. Seems to work without messing up the history of the 'from' security and without incurring capital gain or loss.

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6. System closed this discussion on 27 Dec, 2021 04:40 PM.