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
Highlight |
---|
yellow). |
STAT Treatment
Account
Number
Account
Description
Debit
Amount
Credit
Amount
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
Number
Account
Description
Debit
Amount
Credit
Amount
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 onNew Partner Added Scenario
In this scenario, a security, Sample Joint Venture, currently
holds 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.
Ledger entries follow. Accounts added to support the use of the equity method of accounting appear in yellow.
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 |
Impairment Scenario
In this scenario, a security, Sample Joint Venture, currently
holds 800 units across two lots (500 units in LOT 1 and 300 units in LOT 2).
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 |
Additional Investment
Scenario
In this scenario, a security, Sample Joint Venture, currently
holds 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
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
Number
Account
Description
Debit
Amount
Credit
Amount
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
Number
Account
Description
Debit
Amount
Credit
Amount
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
record, settled separately
Income Adjustments Scenario
Income adjustments are only done for EMA securities.
The current balances for the unrealized accounts follow:
- Unrealized Market gain of $1,000 ($625 allocated to LOT1, $375 to LOT2)
- Unrealized Currency loss of $500 ($312.50 allocated to LOT1, $187.50 to LOT2)
- Unrealized Income (STAT)/Undistributed Income (Other) of $1,200 ($750 allocated to LOT1, $450 allocated to LOT2)
These each display in the Adjust Equity Method Income panel.
The current financial statement reflects the following:
- Unrealized Market loss balance of $300
- Unrealized Currency loss balance of $100
- Additional Unrealized Income/Undistributed Income of $400 (a $1,600 balance)
Note that the Adjust Equity Method Income panel has a field that displays the current balance for market and currency gain/loss, but the Unrealized Income/Undistributed Income field asks only for the income during that financial period.
The system updates the two lots pro-rata to reflect the following balances (the position level stores the total balances as well):
- Unrealized Market loss. $187.50 to LOT1, $112.50 to LOT2
- Unrealized Currency loss. $62.50 to LOT1, $37.50 to LOT2
- Unrealized Income/Undistributed Income. $1,000 to LOT1, $600 to LOT2
Finally, ledger activity posts the delta between prior balance and current balance:
STAT Treatment
Account
Number
Account
Description
Debit
Amount
Credit
Amount
1011000103
UNREALIZED APPRECIATION OF UNDISTRIBUTED INCOME
400.00
0.00
1011000101
UNREALIZED APPRECIATION OF INVESTMENTS
0.00
1,000.00
1011000102
UNREALIZED DEPRECIATION OF INVESTMENTS
0.00
300.00
3003000331
NET UNREALIZED GAIN ALLOCATED TO CAPITAL
1,300.00
0.00
1011000202
UNREALIZED CURRENCY DEPRECIATION OF INVESTMENTS
400.00
0.00
3003000334
NET UNREALIZED CURRENCY LOSS ALLOCATED TO CAPITAL
0.00
400.00
3003000401
UNREALIZED INCOME/LOSS
0.00
400.00
Other Treatment
Account
Number
Account
Description
Debit
Amount
Credit
Amount
1010000100
COST OF INVESTMENTS
400.00
0.00
1011000101
UNREALIZED APPRECIATION OF INVESTMENTS
0.00
1000.00
1011000102
UNREALIZED DEPRECIATION OF INVESTMENTS
0.00
300.00
3003000331
NET UNREALIZED GAIN ALLOCATED TO CAPITAL
1,300.00
0.00
1011000202
UNREALIZED CURRENCY DEPRECIATION OF INVESTMENTS
400.00
0.00
3003000334
NET UNREALIZED CURRENCY LOSS ALLOCATED TO CAPITAL
0.00
400.00
4001000107
UNDISTRIBUTED INVESTMENT INCOME
0.00