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Book Keeping for Trust

Discussion in 'Shares' started by Strawbs, 11th Oct, 2012.

  1. Strawbs

    Strawbs Member

    Joined:
    27th Aug, 2012
    Posts:
    10
    Location:
    Melbourne
    Firstly my apologies if I have this in the wrong forum.

    We (that is my wife and I) have established a Family Trust to hold our shares and I just want to confirm the book keeping practices for the broker fees when purchasing. That is, are these expenses or are they capitalised given we very much intend to hold all securities into the longer-term.

    Thanks.
     
  2. Simon Hampel

    Simon Hampel Co-founder Staff Member

    Joined:
    9th Jun, 2005
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    4,619
    Location:
    Sydney, Australia
    My understanding is that brokerage forms part of the cost base for the asset. That is, it is not an expense and instead decreases the amount of capital gain when you eventually sell.

    Example:

    Purchase price $1,000 brokerage $20, cost base = $1,020
    Sales price $1,500 brokerage $20, net sale proceeds = $1,480

    Net capital gain = $1,480 - $1,020 = $460

    One of our resident accountants/bookkeepers should be able to confirm the correct way to enter this in your books, but I assume it would be allocated to an "asset" account which tracks the purchase price of your asset (ie it increases the purchase price of the asset). It shows up in your balance sheet and not in your P&L statement.
     
  3. Superman

    Superman Well-Known Member

    Joined:
    6th Nov, 2007
    Posts:
    343
    Location:
    Gold Coast, QLD
    Sim is correct

    Brokerage for part of the cost base of the shares.

    Nice example too.

    :)

    SM
     
  4. Strawbs

    Strawbs Member

    Joined:
    27th Aug, 2012
    Posts:
    10
    Location:
    Melbourne
    Thanks all. How about the book keeping entries for the following scenarios. I have listed what I understand they are but looking to confirm.

    1) Selling Shares – Also, do we use the weighted average, FIFO, LIFO or whatever for when we have purchased several shares at different costs?
    Dr Cash Received
    Dr Brokerage Expense (or does this go to the asset account?)
    Cr Shares Holding Account (at purchase cost)
    Cr Income (or Dr Loss if you have one)

    2) Dividend Received - Not sure how we handle if these have been franked?
    Dr Cash
    Cr Income

    3) Dividend Received with shares re-invested?
    Dr Shares Asset Account
    Cr Income