Free distribution of shares

[richard]

Mark,

How do I enter a free distribution of shares ?

On a given date a company whose shares I own has distributed a number of shares at no cost. Am puzzled on how to enter this ?

Richard

[Mark]

Hi Richard,

It sounds like the best way would be with a split transaction. If there was no taxable distribution, and just new shares, then a split would be best. Record it with a ratio of <new shares> for <old shares>. If there was some distribution value, you can record this as a reinvested distribution, where the number of shares is the new shares you received, and the distribution value is the value of the distributed shares.

[richard]

Mark,

I don't think that the distribution is taxable (not absolutely sure will check on this). Doing a split bothers me a bit. The shares are evaluated as the other shares. For example if I hard 1000 shares worth $75/share at closing, I would now have 1100 shares at the same closing value.

If I used a split the value of each share would diminish by the split ratio.

Here what diminishes is the cost/share since I now have 1100 shares for the same cost as my original 1000 shares.

That's my problem.

What I thought I could do was add the 100 shares as a reinvestment distribution with a zero value, but Fund Manager doesn't let me do that.

Is this thing peculiar to Europe? Here with certain companies it happens fairly often.

Richard

[Mark]

Hi Richard,

So, the market value went from $75,000 one day to $82,500 the next day, without you adding any money?

If so, you could use the split, and just keep the price at $75 across the split date, instead of dropping it proportionally as normally happens around a split.

[richard]

Mark

So, the market value went from $75,000 one day to $82,500 the next day, without you adding any money?

If the market reflected that, yes. The value the next day would be what ever the market determined; without my adding any more money.

If so, you could use the split, and just keep the price at $75 across the split date, instead of dropping it proportionally as normally happens around a split.

See above, the price is not actually constant; it is what ever the market value is the next day.

This type of distribution is only done for a certain class of share holders (in France called nominative) and is independent of dividends distributed to all share holders. In my case it involves about 10% of shares held.

Richard

[Mark]

Hi Richard,

It sounds like the split is fine, just record the market price at whatever it is. I was just saying, you don't have to drop the price proportional to the split, like normally happens around a split. I realize there are market fluctuations, and you can record the price at whatever is appropriate, independent of entering the split. If you prefer not to use a split, you could also record a "Transfer In" or "Buy" transaction to acquire more shares, without any cost. All of these are going to reflect the same in terms of performance calculations.