Investment anomalies?

[Jeff Barlow]

On 01/19/2016 04:16 AM, aga wrote:
> On 19/01/16 02:41, Jeff Barlow wrote:
>> First let me concur that the category amount on a reinvested
>> dividend should never be zero. If it was then there is no
>> transaction to record. As Jack says it's exactly a dividend and a
>> buy rolled into one. The dividend is income and must be accounted
>> for as such.
>
> But some transactions involve no money, add or remove shares for
> instance.

It not really important if they involve "money" (cash flow) or not. The
important question is whether they involve a net change in ones net
worth. If a transaction changes ones net worth it may well constitute a
taxable gain or loss. This must be tracked with some income category.
>
> The snag is that any dividend gets added into the transaction total,
>  together with the share cost.  That dividend/category payment will
> add to your total income, and really is a duplication as it will also
> appear in the value of the involved shares.  At least that's how it
> appears to my simple non-accountant's brain.

I think you have the sign reversed on one of the values. They don't add 
they cancel (balance) each other.

> I don't see how the income can purchase shares and also appear as an
> apparent dividend payment. Perhaps someone can put me right on this.

The income is in fact what is used to purchase the shares. It's somewhat 
like a currency conversion.
>
>> I receive dividends from several mutual funds. Some are reinvested
>> in shares of the same fund. Some are used to buy shares in a
>> different fund from the same institution (The Vanguard Group). Some
>> are paid as a cash transfer to my checking account (an ACH
>> transfer). No broker is involved. There is no actual brokerage
>> account. Vanguard does not allow cash accounts. Most of these
>> transactions represent taxable income and need to categorized as
>> such even though many involve no cash flow.
>>
> It's not unusual for 'virtual' accounts to be employed, sometimes to
>  allow for delays between, say, a cheque being raised and the bank's
>  clearing of it.  Superficially, from the KMM point of view,
> everything is simple and straight forward, but the users are far more
> creative than that.

I don't see it quite that way. It's true that from the POV of KMM 
everything seems "simple and straightforward" I see that as rather 
naive. The problem is it fails to accurately model the rather more 
complex reality of these transactions. This forces us users to manually 
enter two or three KMM virtual transactions involving fictitious 
brokerage accounts in order to book what is really a single transaction.
>
>> The only way I've found to record all these transactions in KMM is
>> to employ a fictional brokerage account within KMM. I have to
>> record these single transactions as two separate transactions into
>> and out of this fictional brokerage account.
>>
>> Since this fictional brokerage account does not indeed exist in the
>> real world one would at least expect it to maintain a zero balance.
>> Alas, due to KMM rounding errors that is not even true.
>
> Rounding errors in what parameter?  Presumably not in the monetary
> side, as generally a fixed two decimal places is the norm, except in
> a few(?) countries.

Ah yes. If we were only dealing with monetary numbers there might not be 
an issue. Alas, my mutual funds operate with fractional shares that run 
to four decimal places.

A reinvested dividend transaction (for example) that I download from 
Vanguard contains three important numbers: the dividend amount in 
dollars (two decimal places), the number of shares (four decimal 
places), and the share price (two decimal places). If KMM would just 
accept all three of those as is there wouldn't be a problem. Instead KMM 
insists on doing the math itself and comes up with a slightly different 
answer for one of the three.

My understanding is that US banking and security regulations include 
some "interesting" rules for how rounding is to be done. I wouldn't be 
at all surprised to learn that other countries have slightly different 
rules. I don't claim to understand that.

I'm left with a choice of inaccurate share balances, inaccurate dividend 
income amounts, or inaccurate share basis values. The only work around 
for this that I've found is to break up these transactions into two or 
three parts and carry these "balances" of plus or minus a few cents in 
these fictitious brokerage accounts in order to fudge the important 
numbers to match reality. This causes KMM's idea of my net worth to 
always be a bit off. I currently see no way around this.

-- 
Later,
Jeff