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Jungle
2012-04-21, 09:49 PM
Ok I'm having trouble calculating the correct price on a stock. I think using ACB for taxes and "first in first out" provide different cost base?

I would just like to know the best for my own calculations, (not for taxes)

So let's say share ACB:

reinvest divindend 1@ \$12
Sell 50@12.5
Reinvest dividend 1@10
__________________________
??

What would be the correct cost price and please tell which method you use?

Potato
2012-04-22, 01:16 AM
Unless you have a particular psychological reason for picking something like FIFO, why wouldn't you use ACB? It makes the most sense, even aside from calculating your taxes (with the exception of superficial losses). Unless you want to somehow treat the different purchases differently in your mind: "Well, this block of shares was for me, and this block is ear-marked for my kid's education, so I took a bath but kid's still ok..." or "This block of shares I bought before I read the book that changed my whole investing outlook, and this block I bought after..."

doctrine
2012-04-22, 04:30 AM
Here's my guess. Would be happy for someone to correct me.

Buy 100 @ \$15 = ACB of 1500/100 = \$15/share
Buy 100 @ \$12 = ACB of 2700/200 = \$13.50/share
Buy 1 @ 12 = ACB of 2712/201 = \$13.4925/share
Sell 50 @ 12.5 = no change to ACB, still \$2712/201 or \$13.4925 per share, but only 151 shares left = (151 * 2712/201) = total new ACB of ~\$2037.373. Also, net capital loss of \$0.9975/share on your selling (since you sold below ACB).
Buy 1 @ 10 = ACB of (151*2712/201+10)/152 = \$13.469/share.

humble_pie
2012-04-22, 01:09 PM
doctrine's approach looks perfect to me.

as far as i know the tax authorities don't permit a FIFO approach. There may be special exceptions. AFAIK what they want is a running, constantly adjusted cost base.

there are 2 numbers in every ACB. One is the total adjusted cost of all the shares in the holding on the date of each taxable event, whether an acquisition or a disposition.

the other number is the adjusted cost of the shares on a per share basis, on the same dates (this is nothing more than total ACB/no. of shares. It's a crucial number to know when calculating the cost of a partial disposition.)

particularly to note in doctrine's example is the fact that, after a partial disposition, the total ACB drops but the ACB per share remains the same.

but when new shares are added, both the total ACB & the ACB per share change.

myself i keep detailed spreadsheets alpha by company name. I log in all details affecting cost base, such as mergers, splits, takeovers, special dividends if applicable, returns of capital if such are paid out, etc. All this is handy at tax time.

it's a pain, but i've trained myself to do this as soon as a taxable event occurs, because trying to reconstitute a stock history at tax time is even more painful.

fatcat
2012-04-22, 01:35 PM
i use adjustedcostbase.ca and i got this, at the end of all your transactions

Date: 2012-Apr-21
Transaction: Sell
Amt: \$625.00
Shares: 50
Amount/Share: \$12.50
Capital Gain (Loss): (\$48.76)
Share Balance: 152
Change in ACB: —\$673.76
New ACB: \$2,048.24
New ACB/Share: \$13.48

caricole
2012-04-22, 02:10 PM
humble_pie...but when new shares are added, both the total ACB & the ACB per share change.

myself i keep detailed spreadsheets alpha by company name. I log in all details affecting cost base, such as mergers, splits, takeovers, special dividends if applicable, returns of capital if such are paid out, etc. All this is handy at tax time.

it's a pain, but i've trained myself to do this as soon as a taxable event occurs, because trying to reconstitute a stock history at tax time is even more painful.

I use the same approach with one more detail

The commissions are added immediatly on acquisition and subtracted on disposal

This way, the cost per share is slightly changed, but the difference between the cost and the disposition gives you rightaway the capital gain or loss to the nickel

Yes it is a pain, I just finished the ACB for some IShares, based on the T3 received beginning April

Box 42 and box 21

New value dated 2012 01 01

my opinion

Toronto.gal
2012-04-22, 02:15 PM
The commissions are added immediatly on acquisition and subtracted on disposal

I do it the same way and yes, discipline during the year saves a lot of time at tax-time.

humble_pie
2012-04-22, 02:38 PM
of course, caricole, is what i do, too.

ps i really like your hat.

Jungle
2012-04-22, 03:30 PM
I only ask because I asked Questrade to change the cost price on some shares, he said no, you should be using FIFO, that is the standard.

But thanks for all your help so far.

londoncalling
2012-04-22, 04:51 PM
Questrade uses FIFO and tried to do the same to me with my account. It took some convincing but after a few attempts I convinced them to switch it for me. Since these holdings are in RRSP and TFSA they deemed it irrelevant which may have been the reason extra effort was required.

Cheers

caricole
2012-04-22, 05:08 PM
caricole, ps i really like your hat.

To do «covered options» it is preferable to be «WELL COVERED»

Luckily I have my ears...otherwise I would be blind...:02.47-tranquillity:

humble_pie
2012-04-22, 05:14 PM

i once heard a hilarious cost base story from a discount broker representative who shall be nameless.

he said his method for reporting intermittent or swing trade capital gains was to inspect the history of his total holding in order to identify all the separate purchase prices.

then he would select the highest purchase, so that the capital gain he was about to report would be least.

i thought this was quaint, picturesque, eccentric even, & wrong definitely. But he was serious.

i said i thought that, at the end of his life, everything would wash out only slightly in his favour. His later & final capital gains would relentlessly balloon as he would be forced to retreat to lower & lower selected cost bases. His last-to-be-surrendered shares would have the lowest cost base of all & therefore the highest possible capital gains.