[GNC] unrealized gain / losses for mutual funds

[Andrea Borgia]

Hello.


Trying to improve my book-keeping, I would like to tackle this issue now 
so I went to the documentation, precisely "11.4.1. Unrealized Gains".


Problem is, the example applies to a painting, that is an object whose 
value changes, not shares whose number remains constant but whose value 
changes, thus leading to a change in total valuation.



Since the end goal is to derive unrealized P&L and then include those in 
the economic result for the year, I thought I could record a fake sale, 
after all at book opening the next year I do a fake purchase (with same 
price, just one day apart). If this makes sense, how do I compute the 
P&L given the new price? Must I do that manually with a split or is 
there some kind of assistance by GnuCash?



Thanks,

Andrea.


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Re: [GNC] unrealized gain / losses for mutual funds

[Michael or Penny Novack]

On 5/15/2022 11:15 AM, Andrea Borgia wrote:
Trying to improve my book-keeping, I would like to tackle this issue 
now so I went to the documentation, precisely "11.4.1. Unrealized Gains".


Problem is, the example applies to a painting, that is an object whose 
value changes, not shares whose number remains constant but whose 
value changes, thus leading to a change in total valuation.


Since the end goal is to derive unrealized P&L and then include those 
in the economic result for the year, I thought I could record a fake 
sale, after all at book opening the next year I do a fake purchase 
(with same price, just one day apart). If this makes sense, how do I 
compute the P&L given the new price? Must I do that manually with a 
split or is there some kind of assistance by GnuCash? 



Let's try to clarify WHAT you are trying to do before considering the "how".

I am taking a GUESS as to what you want (and where you want to see it). 
You need to correct what is wrong about the guess. Asking "is this what 
you want?" and then refining that is how a "business analyst" works << 
the client actually knows the answer, but not until prompted by the 
analyst's questions >> You ave a retired senior business analyst here.


Is your situation such that reports based solely on actuals would 
present a grossly distorted picture of your financial situation.? In 
other words, things like the unrealized gains of an investment might be 
too large a fraction to be ignored? << this is common for the very 
wealthy who structure things to minimize their income taxes >>


In other words, you want a statement of income and expenses to show 
these unrealized gains (but of course separate from actual income which 
might be subject to taxation?


If THIS is what you want, you would NOT have to arrange a "fake sale" to 
do this. You would partition "income" into ":real income" and 
"unrealized income" << all your regular income accounts would be 
children of ":real" . Likewise your "pictures" asset account (I take it 
that this is a mutual fund investing in "unfungible assets" like 
artworks) you have a "basis" account for what you paid for your shares 
and a sibling account for "estimated unrealized gain"


You would enter an adjustment at year end, quarter end, etc. that debits 
this asset account (unrealized gains) and credits the unrealized income. 
BTW, for historical reasons these adjustment known as "journal 
transactions". You might be doing this following receipt of a statement 
form the manager of this fund.


Michael D Novack

PS: If this ISN'T what you are trying to do, say so, but please note 
that I might not get back to answering for a couple days. About to be 
tied up in a bunch of board meetings, committee meetings, etc. one after 
the other. That's what happens when you retire, they draft you for 
things like being on boards, committees, etc. and sometimes you get a 
bunch of meetings back to back.




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Re: [GNC] unrealized gain / losses for mutual funds

[john]

> On May 15, 2022, at 8:15 AM, Andrea Borgia  wrote:
> 
> Problem is, the example applies to a painting, that is an object whose value 
> changes, not shares whose number remains constant but whose value changes, 
> thus leading to a change in total valuation.

There's no accounting difference between a painting and a share of stock, 
though using a painting for the example forecloses the opportunity to discuss a 
long-running account having multiple purchases and sales of the asset type 
because Degas paintings are one-offs while shares of, say, Apple are fungible.

> On May 15, 2022, at 8:43 AM, Michael or Penny Novack 
>  wrote:
> 
> Likewise your "pictures" asset account (I take it that this is a mutual fund 
> investing in "unfungible assets" like artworks)

No, it's about the example in the Tutorial and Concepts Guide. The author chose 
to be cute and use a painting as the example asset.


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Re: [GNC] unrealized gain / losses for mutual funds

[john]

> On May 15, 2022, at 8:15 AM, Andrea Borgia  wrote:
> 
> Since the end goal is to derive unrealized P&L and then include those in the 
> economic result for the year, I thought I could record a fake sale, after all 
> at book opening the next year I do a fake purchase (with same price, just one 
> day apart). If this makes sense, how do I compute the P&L given the new 
> price? Must I do that manually with a split or is there some kind of 
> assistance by GnuCash?

That's called marking to market and it's not directly supported by GnuCash. 
You'll have to manually "sell" your assets at the FMV on the last day of the 
old accounting period and buy them at that same FMV on the first day of the new 
period. You'll compute cap gains on the sale as usual but you'll maintain 
separate realized and unrealized cap gain income accounts. When you finally 
sell the asset for real you'll create a pair of splits that transfers all of 
the unrealized capital gains for those shares to the realized cap gains 
account. That won't be too hard as long as you buy and sell whole positions all 
at once--e.g. you bought 100 shares of AAPL and sold them all at once later 
without ever buying or selling in between. If that's not how you invest then 
you'll have to either invent a way of keeping track of each purchase lot or an 
average-cost model. For a discussion of the latter see 
https://bugs.gnucash.org/show_bug.cgi?id=797796 
.

The Balance Sheet report automatically computes an Equity:Unrealized Gains line 
item if you use the "price nearest to report date" price source option. You can 
compute that as an income value by comparing it to the same line item for the 
previous period.

Regards,
John Ralls

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Re: [GNC] unrealized gain / losses for mutual funds

[Michael or Penny Novack]

Problem is, the example applies to a painting, that is an object 
whose value changes, not shares whose number remains constant but 
whose value changes, thus leading to a change in total valuation.


There's no accounting difference between a painting and a share of 
stock, though using a painting for the example forecloses the 
opportunity to discuss a long-running account having multiple 
purchases and sales of the asset type because Degas paintings are 
one-offs while shares of, say, Apple are fungible.


I don't think he is talking about A painting or other singular work of 
art but shares of a fund investing in non-fungible art. So you could 
think of it like shares that could be bought or sold except I think this 
is likely in an IRA, Roth IRA, 401k, etc, so you aren't doing that << if 
there are multiple investment options can shift between >>


Michael


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