How to record the gain from a company investing my assets?

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Hello,

I am a little confused about how to perform the accounting for the following scenario and would appreciate any guidance. This should be under IFRS.

Scenario Description:

Firm "The_Client" (client) and "The_Fund" (invests the assets of the client)
  1. The_Client has $100,000 USD that were transferred over to The_Fund
  2. The_Fund perform investment activities that increase the value to $105,000
Additional details (if relevant):
  • The_Client has no access to the accounts used by The_Fund to perform the investments (i.e. their brokers)
  • Both parties have a legal contract that states that The_Fund invests for the benefit of The_Client - "For the Benefits of xxx" ("FBO")

The Accounting:

My understanding is that the journals would be:

Cash............. $100,000 (credit)
Accounts Receivable..........$100,000 (debit)

Accounts Receivable............. $5,000 (debit)
??? unrealized gain ??? ..........$5,000 Which account should be used here?

Any other things that I may be missing? Thanks!
 

DrStrangeLove

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Whose journal entries are these supposed to be, the investor-client or the investment firm? If it's the investor-client's journal entries, It wouldn't debit Accounts Receivable. It would debit Investments - The_Fund (or something similar), an asset account used to identify the investor-client's investment in The_Fund. So the entries would look more like:

DR Investment - The_Fund.....$100,000
CR Cash ....................................$100,000

DR Investment - The_Fund ......................................$5,000
CR Unrealized Gain on Investment - The_Fund ......$5,000
 
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Whose journal entries are these supposed to be, the investor-client or the investment firm? If it's the investor-client's journal entries, It wouldn't debit Accounts Receivable. It would debit Investments - The_Fund (or something similar), an asset account used to identify the investor-client's investment in The_Fund. So the entries would look more like:

DR Investment - The_Fund.....$100,000
CR Cash ....................................$100,000

DR Investment - The_Fund ......................................$5,000
CR Unrealized Gain on Investment - The_Fund ......$5,000
Thanks. Would this account " Unrealized Gain on Investment" be part of Other Comprehensive Income?
 

DrStrangeLove

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Thanks. Would this account " Unrealized Gain on Investment" be part of Other Comprehensive Income?
Yes, I believe so. Since you're using IFRS, you should double-check to make sure. I'm more familiar with US GAAP, but I think on this particular point, the two sets of standards agree.
 
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Yes, I believe so. Since you're using IFRS, you should double-check to make sure. I'm more familiar with US GAAP, but I think on this particular point, the two sets of standards agree.
Thanks. I would like to get your point of view on the following please:

Suppose that every month The_Fund charges a management fee for investing The_Client's assets. But this fee is to be paid annually.

I would like to confirm my understanding of the fee's accounting for both entities. Let's suppose $100 management fee for a given month as example.

The_Fund
Accounts receivable......100 (Assets)
Management fees ...................100 (I/S) --> would this be I/S or some sort of unrealized gains account?

The_Client

Unrealized gains from investment......100 (Other Comprehensive Income_Equity)
Accounts payable......100 (Liabilities)
 

DrStrangeLove

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The entry for The_Fund looks correct. They would book a receivable for the fees the client owes them and revenue for the management fees earned. (The account would be a revenue account, and would appear in the top of the income statement.)

The entry for The_Client would book a payable for the fees owed, but not against unrealized gains. The entry would book a payable against an expense account:

DR Investment Expenses - The_Fund.....100 <---This in an expense account above Net Income on the Income Statement
CR Account Payable..................................100
 
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Recording a gain from a company investing your assets typically involves recognizing the increase in the value of your assets as income on your financial statements. The specific accounting treatment can vary based on the nature of the investment and accounting standards in use. Generally, if the investment results in capital appreciation, you would record the gain on your income statement under "investment income" or a similar account. If the gain is considered unrealized (meaning you haven't sold the asset yet), it may be recorded as an increase in the value of the asset on your balance sheet. However, if the investment results in realized gains, such as through a sale, you would record the gain as income on your income statement and adjust the value of the asset on your balance sheet accordingly. Always consult with an accountant or financial advisor to ensure accurate and compliant recording of investment gains based on your specific circumstances and accounting standards.
 
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To record gains from a company investing your assets, debit the investment account for the initial value and credit the income account for the gain earned. For example, debit "Investment Asset" and credit "Investment Income." Consult with a financial advisor or accountant for specific guidance.
 

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