Recording a stock demerger....

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Recording a stock demerger....

gc.20.reachmm
Folks,

I'd like to understand how one goes about recording a stock demerger
transaction in GNU cash.
I'd been owning X shares of a company A, which underwent a demerger, which
resulted in all
shareowners of company A, getting shares in Company B in the ratio of 1:1.
So I end up
with X shares each in both company A and B. The cost of acquisition is to
be taken as 60:40%
of the pre demerger cost of acquisition of company A.

I can not record this as a split, since it involves a new company B.
I can not record this as a transfer, since there is no change in the number
of shares in company A
post the demerger (Its just that the acquisition price changes). How do I
handle this?


Thanks,
-Mani
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Re: Recording a stock demerger....

John Ralls

> On Aug 8, 2017, at 12:08 PM, [hidden email] wrote:
>
> Folks,
>
> I'd like to understand how one goes about recording a stock demerger
> transaction in GNU cash.
> I'd been owning X shares of a company A, which underwent a demerger, which
> resulted in all
> shareowners of company A, getting shares in Company B in the ratio of 1:1.
> So I end up
> with X shares each in both company A and B. The cost of acquisition is to
> be taken as 60:40%
> of the pre demerger cost of acquisition of company A.
>
> I can not record this as a split, since it involves a new company B.
> I can not record this as a transfer, since there is no change in the number
> of shares in company A
> post the demerger (Its just that the acquisition price changes). How do I
> handle this?

The normal term for this is "a spin-off".

You can use the split assistant for it. Create the new security and account first, then do the split in the "parent" stock with the assistant. I don't remember off hand whether you can designate a different stock for the new shares; if you can't then just create them in the parent stock and edit the resulting transaction so that the spun-off shares are in the new account.

You should get a letter from the parent company with the new share prices immediately after the spin-off. Go to Tools>Price Editor and create prices for the day of the spin-off reflecting those new share prices. Keep the letter until n years after you sell both stocks (if you ever do) where n is the records retention period required in your tax jurisdiction (7 years in the US).

Regards,
John Ralls
 
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RE: Recording a stock demerger....

ChrisGood
In reply to this post by gc.20.reachmm
> Message: 6

> Date: Wed, 9 Aug 2017 20:23:04 +0300
> From: John Ralls <[hidden email]>
> To: [hidden email]
> Cc: [hidden email]
> Subject: Re: Recording a stock demerger....
> Message-ID:
> <F79E5AEE-3B2E-4A7A-8508-
> [hidden email]>
> Content-Type: text/plain; charset=us-ascii
>
>
> > On Aug 8, 2017, at 12:08 PM, [hidden email] wrote:
> >
> > Folks,
> >
> > I'd like to understand how one goes about recording a stock demerger
> > transaction in GNU cash.
> > I'd been owning X shares of a company A, which underwent a demerger,
> > which resulted in all shareowners of company A, getting shares in
> > Company B in the ratio of 1:1.
> > So I end up
> > with X shares each in both company A and B. The cost of acquisition is
> > to be taken as 60:40% of the pre demerger cost of acquisition of
> > company A.
> >
> > I can not record this as a split, since it involves a new company B.
> > I can not record this as a transfer, since there is no change in the
> > number of shares in company A post the demerger (Its just that the
> > acquisition price changes). How do I handle this?
>
> The normal term for this is "a spin-off".
>
> You can use the split assistant for it. Create the new security and
account
> first, then do the split in the "parent" stock with the assistant. I don't
> remember off hand whether you can designate a different stock for the new
> shares; if you can't then just create them in the parent stock and edit
the
> resulting transaction so that the spun-off shares are in the new account.
>
> You should get a letter from the parent company with the new share prices
> immediately after the spin-off. Go to Tools>Price Editor and create prices

> for
> the day of the spin-off reflecting those new share prices. Keep the letter

> until
> n years after you sell both stocks (if you ever do) where n is the records
> retention period required in your tax jurisdiction (7 years in the US).
>
> Regards,
> John Ralls

Hi,

IMHO Using the stock split assistant adds no value to this process and just
wastes your time figuring out what it does. It doesn't allow you to specify
the new stock you have acquired.

I suggest just setting up the new stock as though you bought it.
If the value of your old stock has reduced but you still have the same no of

shares, you can record the loss of value in a Return of Capital transaction
(see the manual). The Return of Capital will be correctly handled by the
Advanced Portfolio Report but will cause the Trial Balance to go out of
balance.

In my uses of this, the old stock has reduced in value by the same amount as

the value of the new stock, so I've made the other side of both transactions

to a dummy account (either a bank or equity account). I.e. Return of Capital

of old stock to a dummy account, buy the new stock from the dummy account.

While I'd be happy to hear of a better way to do this, I've extensively
investigated this, so no half-baked suggestions please. :-)

Some discussion you may be interested in:
http://gnucash.1415818.n4.nabble.com/Trial-Balance-does-not-include-amount-o
f-Return-of-Capital-Investment-splits-td4691653.html#a4691657

I Am Not An Accountant, so please check with your accountant.

Regards, Chris Good

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