Accounting for Investments
This query is : Resolved
A. Prithvi Surya
(Querist)
14 December 2010
Dear Experts,
A Mutual Fund Scheme which is based on Daily Dividends, The Daily Dividends will automatically get Re-invested. In this scenerio, if we recognise the dividends as Income and add back to Investments, the Investments are not being valued at cost even if they are long term in nature. Please assist me on this. Thanks in advance.
A Mutual Fund Scheme which is based on Daily Dividends, The Daily Dividends will automatically get Re-invested. In this scenerio, if we recognise the dividends as Income and add back to Investments, the Investments are not being valued at cost even if they are long term in nature. Please assist me on this. Thanks in advance.
14 December 2010
Daily dividend is, of course, a DIVIDEND Income. But the corresponding entry is :Debit to the MF A/c
So the cost of investment gets added & on the same by crediting the dividend, income gets recognize.
See... the point is very clear.. even if the dividend is re-invested, it adds to the cost only.
So the cost of investment gets added & on the same by crediting the dividend, income gets recognize.
See... the point is very clear.. even if the dividend is re-invested, it adds to the cost only.
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14 December 2010
so far as long term is concerned... you have to maintain the records on daily basis. So on any given point of sale, you can be sure of the nature of sold MF units i.e long term or short term.
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A. Prithvi Surya
(Querist)
14 December 2010
So Sir you mean to say, for such Mutual Funds it is difficult to value them at cost?
A. Prithvi Surya
(Querist)
14 December 2010
Sir can you also throw some light on the term "Unrealized Gains" In these mutual Funds?
14 December 2010
No I am not saying so. If you are talking of accounting as per companies act, then all the dividend reinvested will be added to the actual cost of investment & on any sale point you will have the total cost (including dividend reinvested).
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14 December 2010
if you are saying for the Income tax, where FIFO method is followed, then the only way is :
you have to maintain the records on daily basis. So on any given point of sale, you can be sure of the nature of sold MF units i.e long term or short term.
you have to maintain the records on daily basis. So on any given point of sale, you can be sure of the nature of sold MF units i.e long term or short term.
A. Prithvi Surya
(Querist)
14 December 2010
Thank you very much Sir.. Got your point...
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