Distributions Scenarios for EMA Method

Distributions Scenario A

Distributions can come in the form of cash (Return of Capital) and/or investment income (Return of Income), which the system both allocates pro-rata to the lot level. Sample Joint Venture security has two open lots of 500 units (LOT1) and 300 units (LOT2). The fund is due a cash distribution of $10,000 and net income from operations of $3,000. In processing the $3,000 of net income, note that the UNREALIZED INCOME/LOSS (or Undistributed Investment Income, depending on basis treatment) balance must be a credit of at least $3,000 for the transaction to process.

The system updates two lots pro-rata to reflect the following balances (the position level stores the total balances as well):

• Cash. $6,250 for LOT1, $3,750 for LOT2

• Investment Income. $1,875 for LOT1, $1,125 for LOT2

Finally, the ledger entries for this transaction follow. Accounts added to support the use of the equity method of accounting appear in yellow.

STAT Treatment

Other Treatment

Note that the system creates Cash records to record the receivable.

Distributions Scenario B

This second example for distributions highlights the unique entries required for any realized currency gains/losses from both capital and income. Note that the system calculates the base value of both the return of capital and return of income amounts proportional to the local amount. For this example, the STAT and Other treatments are separated, due to different cost calculations to reach the realized gain/loss amounts.

STAT Treatment

The current local amortized cost of the position is $100,000, base is $50,000; the local UNREALIZED INCOME/LOSS is $10,000, base is $4,000. The transaction has a return of capital of $10,000 (with an FX rate (tag 87) of .4, the base amount is calculated as $4,000), and a return of income of $3,000 (with a blended income FX rate (tag 484) of .3 the base income is $900).

Booking proportional to the local amounts, the base cost of capital is (10,000 / 100,000 = .1 x 50,000) $5,000 and the system sets the base income cost to (3,000 / 10,000 = .3 x $4,000) $1,200.

To then calculate the realized gain/loss values, the base capital amount is (4,000 - 5,000) $1,000 loss; the base income amount is (900 – 1,200) $300 loss.

Finally, the ledger entries for the two basis treatment methods follow. This is only base activity because the local entries are the same as shown for the previous scenario.

Other Treatment

The current local amortized cost of the position is $110,000 (including $10,000 in undistributed income), base is $54,000 (including $4,000 in undistributed income). The transaction has a return of capital of $10,000 (with an FX rate (tag 87) of .4, the base amount is calculated as $4,000), and a return of income of $3,000 (with a blended income FX rate (tag 484) of .3 the base income is $900), The total receivable is $13,000, base is $4,900.

Booking proportional to the local amounts, the base cost of capital is (10,000 / 110,000 = .091 x 54,000) $4,909.09. The base distributed income is (3,000 / 10,000 = .3 x $4,000) $1,200.00, while the cost of that income comes out to (3,000 / 110,000 = .027 x 54,000) $1,472.73.

To then calculate the realized gain/loss values, the base capital amount is (4,000 – 4,909.09) $909.09 loss; the base income amount is (900 – 1,472.73) $472.73 loss. And the total base cost comes out to (4,909.09 + 1,472.73) $6,381.82, which syncs up with the total loss amount ($6,381.82 – 5,200) = (909.09 + 472.73).

Finally, the ledger entries for the two basis treatment methods follow. This is only base activity because the local entries are the same as shown in the previous scenario.