Accounting for Investments

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A. Prithvi Surya (Querist)
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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.

CMA. Subhash Kumar Jha

CMA. Subhash Kumar Jha (Expert)
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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.

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CMA. Subhash Kumar Jha

CMA. Subhash Kumar Jha (Expert)
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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

A. Prithvi Surya (Querist)
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14 December 2010 So Sir you mean to say, for such Mutual Funds it is difficult to value them at cost?

A. Prithvi Surya

A. Prithvi Surya (Querist)
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14 December 2010 Sir can you also throw some light on the term "Unrealized Gains" In these mutual Funds?

CMA. Subhash Kumar Jha

CMA. Subhash Kumar Jha (Expert)
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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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CMA. Subhash Kumar Jha

CMA. Subhash Kumar Jha (Expert)
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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.

A. Prithvi Surya

A. Prithvi Surya (Querist)
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14 December 2010 Thank you very much Sir.. Got your point...

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