Buy JVLCLP Security Scenario
The EMAENT entity buys 1,000 units of security Sample Joint Venture at a cost of $10,000 (price per share of $10).
The system adds the Equity/Cost Method Flag (tag 16092) to both the open lot and the position level, set as EMA for both bases.
The ledger entries for each basis follow.
STAT Treatment and Other Treatment
Account
Number
Account
Description
Debit
Amount
Credit
Amount
1010000100
COST OF INVESTMENTS
10,000.00
0.00
2002000100
INVESTMENT PAYABLE
0.00
10,000.00
This transaction creates a cash receivable record, that settles separately.
Convert JVLCLP Security Scenario
Entity EMAENT holds 1,000 units of security Sample Joint Venture and needs to convert it onto the system.
The position is booked with a new amount of $10,000. There are also values for unrealized gain ($300), unrealized FX loss (-$200), and Unrealized Income ($600) for STAT/Undistributed Income ($600) for Other to be converted on. Note that the Unrealized Market, FX and Income entries are automatically processed to the corresponding Accumulated account, because the expectation is these transactions will process across a year-end.
The system creates new positions for both STAT and GAAP, sets them to EMA, with the following ledger activity (accounts specific to the equity method of accounting appear in
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yellow). |
STAT Treatment
Account | Account | Debit | Credit |
|---|---|---|---|
1010000100 | COST OF INVESTMENTS | 10,000.00 | 0.00 |
9999999992 | CONVERSION COST | 0.00 | 10,000.00 |
1011000103 | UNREALIZED APPRECIATION OF UNDISTRIBUTED INCOME | 600.00 | 0.00 |
1011000101 | UNREALIZED APPRECIATION OF INVESTMENTS | 300.00 | 0.00 |
3003000335 | ACCUMULATED UNREALIZED GAIN/LOSS ALLOCATED TO CAPITAL | 0.00 | 300.00 |
1011000202 | UNREALIZED CURRENCY DEPRECIATION OF INVESTMENTS | 0.00 | 200.00 |
3003000336 | ACCUMULATED UNREALIZED CURRENCY GAIN/LOSS ALLOCATED TO CAPITAL | 200.00 | 0.00 |
3003000337 | ACCUMULATED UNREALIZED INCOME/LOSS | 0.00 | 600.00 |
Other Treatment
Account | Account | Debit | Credit |
|---|---|---|---|
1010000100 | COST OF INVESTMENTS | 10,600.00 | 0.00 |
9999999992 | CONVERSION COST | 0.00 | 10,000.00 |
1011000101 | UNREALIZED APPRECIATION OF INVESTMENTS | 300.00 | 0.00 |
3003000335 | ACCUMULATED UNREALIZED GAIN/LOSS ALLOCATED TO CAPITAL | 0.00 | 300.00 |
1011000202 | UNREALIZED CURRENCY DEPRECIATION OF INVESTMENTS | 0.00 | 200.00 |
3003000336 | ACCUMULATED UNREALIZED CURRENCY GAIN/LOSS ALLOCATED TO CAPITAL | 200.00 | 0.00 |
3003000338 | ACCUMULATED UNDISTRIBUTED INVESTMENT INCOME | 0.00 | 600.00 |
In both cases the system stores the Unrealized market, FX, and income/loss amounts on the position and lot levels, for reporting and future transaction purposes.
Cost Adjustment Scenario for New Partner Added
There are three cost adjustments available for EMA securities: New Partner Added, Impairment, and Additional Investment. Each scenario is based on a security, Sample Joint Venture, currently holding 800 units across two lots (500 units in LOT 1 and 300 units in LOT 2).
The New Partner Added transaction adjusts differently for the two basis treatment methods, with one adjusting the App/Dep accounts and the other adjusting cost. Sample Joint Venture requires an adjustment due to an additional partner, with $1,200 in cost added to the position.
The EMAADJUST transaction creates an open adjustment lot with a transaction reason (tag 56) of EMANEWPART added to the security. For the STAT treatment, the offset account is Unrealized App/Dep, while for the Other treatment it is Cost. The system adds $1,200 to any existing undistributed income on the position level and adjusts open lots proportionally.
STAT Treatment
Account | Account | Debit | Credit |
|---|---|---|---|
1011000103 | UNREALIZED APPRECIATION OF UNDISTRIBUTED INCOME | 1,200.00 | 0.00 |
3003000401 | UNREALIZED INCOME/LOSS | 0.00 | 1,200.00 |
Other Treatment
Account | Account | Debit | Credit |
|---|---|---|---|
1010000100 | COST OF INVESTMENTS | 1,200.00 | 0.00 |
4001000107 | UNDISTRIBUTED INVESTMENT INCOME | 0.00 | 1,200.00 |
Cost Adjustment Scenario for Impairment
There are three cost adjustments available for EMA securities: New Partner Added, Impairment, and Additional Investment. Each scenario is based on a security, Sample Joint Venture, currently holding 800 units across two lots (500 units in LOT 1 and 300 units in LOT 2).
In this scenario, you need to impair Sample Joint Venture by $700. Note that for both bases the Unrealized Income/Loss (STAT) and Undistributed Income (GAAP) are not affected. You can adjust those values separately using the Adjust Equity Method Income panel.
STAT Treatment and Other Treatment
Account | Account | Debit | Credit |
|---|---|---|---|
1010000100 | COST OF INVESTMENTS | 0.00 | 700.00 |
4004000303 | REALIZED LOSS - IMPAIRMENT | 700.00 | 0.00 |
Cost Adjustment Scenario for Additional Investment
There are three cost adjustments available for EMA securities: New Partner Added, Impairment, and Additional Investment. Each scenario is based on a security, Sample Joint Venture, currently holding 800 units across two lots (500 units in LOT 1 and 300 units in LOT 2).
Options for Additional Investment include updating the Total Commitment, Units/Ownership Percentage, and/or the Cost on the position. The Commitment and Units/Ownership Percentage values flow to the position level and also update open lots pro rata. The additional Cost updates position-level and lot-level amounts, and results in a ledger entry that follows.
Current Cost for Sample Joint Venture is $1,000, with $800 allocated to LOT 1 (500 units) and $200 to LOT 2 (300 units). You are booking $400 in additional cost.
The system allocates:
- 62.5% (500/800) of the cost to LOT 1 ($250, so new current cost of $1,050)
- 37.5% (300/800) of the cost to LOT 2 ($150, so new current cost of $350)
The ledger entry processes the same for both STAT and GAAP treatment, as follows.
STAT Treatment and Other Treatment
Account | Account | Debit | Credit |
|---|---|---|---|
1010000100 | COST OF INVESTMENTS | 400.00 | 0.00 |
2002000100 | INVESTMENT PAYABLE | 0.00 | 400.00 |
This transaction creates a cash payable record, settled separately.
Sale of Interest Scenario
These examples describe ledger entries associated with the Sell Shares Equity Method panel.
STAT Treatment
LOT1 has a current cost of $5,000, LOT2 has a current cost of $4,000, for a total position cost of $9,000. The cash booked on the Sale of Interest transaction is $7,000, closing 75% of the position.
75% of the cost is reduced in this transaction, or $6,750. The system reduces UNREALIZED INCOME/LOSS, unrealized market G/L, and unrealized currency G/L proportionally. Assuming current position balances of $5,000 for UNREALIZED INCOME/LOSS, and $3,000 for Unrealized Market Gain. 75% of the Unrealized Income balance is $3,750, and 75% of the Unrealized Market balance is $2,250.
The investment receivable nets the amount of the close transaction ($7,000) and any distributed income ($3,750).
Account | Account | Debit | Credit |
|---|---|---|---|
1010000100 | COST OF INVESTMENTS | 0.00 | 6,750.00 |
1002000100 | INVESTMENT RECEIVABLE | 10,750.00 | 0.00 |
1011000101 | UNREALIZED APPRECIATION OF INVESTMENTS | 0.00 | 2,250.00 |
1011000103 | UNREALIZED APPRECIATION OF UNDISTRIBUTED INCOME | 0.00 | 3,750.00 |
3006000101 | REALIZED GAIN ON INVESTMENTS | 0.00 | 4,000.00 |
3003000331 | NET UNREALIZED GAIN ALLOCATED TO CAPITAL | 2,250.00 | 0.00 |
3003000401 | UNREALIZED INCOME/LOSS | 3,750.00 | 0.00 |
Other Treatment
LOT1 has a current cost of $8,000, LOT2 has a current cost of $6,000, for a total position cost of $14,000. Note that for the Other treatment, any undistributed income is booked as cost, hence the different starting point from the transaction above. The cash booked on the sale of interest is $10,750, closing 75% of the position.
75% of the position, or $10,500, is closed. Both LOT1 and LOT2 are partially closed, with all UNREALIZED INCOME/LOSS, unrealized market G/L, and unrealized currency G/L relieved proportionally. Assuming current position balances of $5,000 for Undistributed Investment Income, and $3,000 for Unrealized Market Gain. 75% of the Undistributed Income balance is $3,750, and 75% of the Unrealized Market balance is $2,250.
The Other treatment accounting reduces cost by the proportional reduction in undistributed income, with the same $10,750 of investment receivable.
Account | Account | Debit | Credit |
|---|---|---|---|
1010000100 | COST OF INVESTMENTS | 0.00 | 10,500.00 |
1002000100 | INVESTMENT RECEIVABLE | 10,750.00 | 0.00 |
1011000101 | UNREALIZED APPRECIATION OF INVESTMENTS | 0.00 | 2,250.00 |
3006000101 | REALIZED GAIN ON INVESTMENTS | 0.00 | 250.00 |
3003000331 | NET UNREALIZED GAIN ALLOCATED TO CAPITAL | 2,250.00 | 0.00 |
4001000107 | UNDISTRIBUTED INVESTMENT INCOME | 3,750.00 | 0.00 |
4001000108 | INVESTMENT INCOME | 0.00 | 3,750.00 |
Both transactions create a cash receivable record, settled separately.