Installment payment sales

[Houstonwb]

How do I record an installment sale? This is a situation where the proceeds of the sale come both upfront and, in addition, over time. The amounts over time (e.g. an earnout) may or may not be known at the time of the transaction. All payments are capital gains, rather than dividends or return of capital. The number of shares should stay the same until the final payment.

[Mark]

Hi Houstonwb,

We don't have any special features for this. It sounds like you would just record capital gain distributions as you receive them. The shares could stay the same, and if the value goes down, your closing price would go down, so the market value is reported properly.

[Houstonwb]

The FMgr Register shows the original Purchase as a positive number; and the Redemption (sell) as a negative number. But why is subsequent the Capital Gain as a positive number? Wouldn't it be the same sign as the Redemption?

I worry that it is confusing the Portfolio Performance report which shows a Gain but not a %Gain.
Unable to calculate %Gain for ABC Conv due to negative OOP basis (-5560.87)
Unable to calculate %Gain for ABC Conv due to zero ending value
Unable to calculate %Gain-V for ABC Conv. Beginning value is zero or negative (0.00)
The report shows a $0 Beg Value & $0 Eng Value with the correct Contributions and Withdrawals. The Installment Payment/Capital Gain is shown as a With-Distrib.

The transactions are:
Date Transaction Price Shares Fee Amount ($) Memo Shr Blnc Balance ($)
9/12/2013 Buy 1 10,542.00 10,542.00 10,542.00 10,542.00
10/12/2014 Sell 1.2 -10,542.00 -12,650.40 0 0
9/15/2016 MTCapGn 3,452.47 0 0

Buy Totals: 10,542.00 10,542.00
Sell Totals: -10,542.00 -12,650.40
MTCapGn Tota ls: 3,452.47

There is no cash account.

[Mark]

Hi Houstonwb,

You sold all your shares on 10/12/14. Based on your earlier description of how this investment works, you should only record the final sell when your share balance goes to zero. It would be something like:

Buy X shares
Cap Gain
Cap Gain
Sell X shares

On the dates of the Cap Gain transactions, the closing price should be going down, to reflect a smaller market value after the distribution.

[Houstonwb]

No luck. The %Gain is missing although the Yield is correct.
Can I consolidate the ending 9/15/16 Sale (for $0 Amount) and the 9/15/16 Capital Gain (for $3452) into one sale? Your reply implied they should be separate trx.


Portfolio Performance
ABC, 9/12/2013 - 6/12/2017

Investment Beg Value Contributions Withdrawals With-Distrib. End Value Gain %Gain Yield
ABC Conv 0.00 10,542.00 0.00 16,102.87 0.00 5,560.87 N.A.<< 35.0

- - -
Date Transaction Price Shares Fee Amount ($) Memo Shr Blnc Balance ($)
9/12/2013 Buy 1 10,542.00 10,542.00 10,542.00 10,542.00
10/12/2014 MTCapGn 12,650.40 10,542.00 10,542.00
9/15/2016 Sell 0 -10,542.00 0 0 0
9/15/2016 LTCapGn 3,452.47 0 0

Buy Totals: 10,542.00 10,542.00
Sell Totals: -10,542.00 0
MTCapGn Tota ls: 12,650.40
LTCapGn Tota ls: 3,452.47

---
9/12/2013 - 6/12/2017
Unable to calculate %Gain for ABC Conv due to negative OOP basis (-5560.87)
Unable to calculate %Gain for ABC Conv due to zero ending value
Unable to calculate %Gain-V for ABC Conv. Beginning value is zero or negative (0.00)

[Mark]

Hi Houstonwb,

Since you've sold all the shares, the ending value is zero. The %Gain can't be calculated between 2 dates when the ending value is zero. This isn't specific to this investment, it always works that way.

Yes, it is fine to combine the sell and cap gain on the final sell date into a single sale.

[Houstonwb]

The %Gain certainly can be calculated when a beginning or ending value is zero.
In my case, there are Purchases and Distributions that make the numerator & denominator nonzero despite a zero beginning and ending value. The calculation test should be is that the numerator not be zero and also the denominator not be zero.
I figure my % gain is: =(0+16102.87+0-0-10542)/(0+10542) = 53%

=(Endvalue+Distributed+Redemptions-Begvalue-Purchases)/(Begvalue+Purchases-Distributed-Redemptions)
I don’t understand “-Distributed-Redemptions” portion of the denominator in FMgr’s formula. The denominator should be the total investment cost: beginning value + purchases.

I use a simpler formula of ((money out/money in)-1)*100; or ((Endvalue+Distributed+Redemptions)/(Begvalue+Purchases))-1)*100. The money out should be reduced by fees because returns are net of fees. The money in should include fees because they are a cost of the investment.

Investopedia is helpful on this point. https://www.investopedia.com/ask/answer ... nvestment/

[Mark]

Hi Houstonwb,

The %Gain field is the % Gain based on the OOP basis between the beginning/ending date range. You're describing what we call the %Gain-I field. The "I" is for "Invested". The %Gain-I is:

(endvalue + distributions + redemptions - begval - purchases) / (begval + purchases)

Both %Gain-I and %Gain are available in the Portfolio Performance report, and you can choose under "Options / Report Preferences... / Portfolio Performance". In practice, the % gain figures can be misleading, depending on the timing of the ins/outs. None of them are time weighted. For the best performance metric I usually suggest using the ROI yields, which are both time and money weighted.

[Houstonwb]

I am still hammering away at %-Gain-I. Can you describe how I should enter conversions? Say, I buy a convertible note for $10. Later it converts into an equity at a 20% discount with no change in the amount I invested (OOP?) or cost basis. I believe a conversion is a like-kind exchange and does not change the cost basis for accounting and tax.
I am looking for the %Gain and Return of the market value of the equity today compared to the cost of the convertible when I invested. This would reflect my cash transactions.
I am concerned that a combo purchase of convertible, sale of convertible, purchase of equity increases the cost and redemption value because there would be two costs and two redempions. While the dollar amounts would be correct, the percentage gain would be less because the numerator and denominator would be higher.
If I do a transfer, I get confused about correct values for the market value, OOP and tax cost basis. How does one calculate those values in a way the preserves them through entering the transaction? Shouldn't Fund Manager know these values best?

[Mark]

Hi Houstonwb,

Based on your description, it sounds like you could record this just with a split transaction on the date of the conversion. So, it would be:

Buy X shares of conversion
Split Y for X (where Y are the number of equity shares you ended up with)

Change the name/symbol/CUSIP properties. This will keep the whole history in a single investment, and your tax basis will be just what you initially paid. On the date of the split the share price will start being that of the equity shares, and prior to the split date it is the price of the note shares.

[Houstonwb]

How do the finance accountants feel about this approach? A split is graceful. But there are two securities, a convertible note and an equity. The name change blurs what happened because there is no record of the name change in the transaction ledger.

[Mark]

Hi Houstonwb,

If you prefer, you can use the "Transfer Between" wizard to move the shares to a new investment. This will transfer your original cost basis to the new shares.

If you do decide to use the Split method, you could also record an investment note on the date and/or include some mention in the split transaction memo.

[Houstonwb]

Sounds good but how do you do that? All I see in Help are wizards for New Portfolio, Reconciliation, Bulk Reconciliation.
This thread makes it sound promising. viewtopic.php?f=6&t=4853&hilit=Transfer+Between+wizard
Found it: from security view, MORE > INVESTMENT DATA > TRANSFER BETWEEN.