Hey Benny,

Think of currency gains like capital gains. Some are realised when ‘sold’ (‘real gain’) whereas the others sit as unrealised (‘paper gain’).

Often for smaller investors gains are not recorded until realised, but the Fund is a reporting entity and has to apply International Accounting Standard (IAS) 40 which says:

“Investment property is remeasured at fair value, which is the amount for which the property could be exchanged between knowledgeable, willing parties in an arm’s length transaction. [IAS 40.5] Gains or losses arising from changes in the fair value of investment property must be included in net profit or loss for the period in which it arises. [IAS 40.35]”

So, in our case we need to record movements in fair market value. The basis we use is an independent appraisal by a third party expert.

In the case of currency movements, we need to apply IAS 21. This accounting standard draws a difference between monetary items like cash in the bank (where exchange gains / losses must go to the P&L) and non monetary items like property (where exchange gains / losses go to an equity reserve). This means that gains / losses on USD we have in the bank goes to the P&L, whereas exchange gains made on US property goes to the equity reserve (rather than the P&L).

For the bean counters, the journal entry for a realised gain is:

DR: Bank (Balance sheet)
CR: Profit (P&L)

But for an unrealised gain – as required by accounting standards, it’s:

DR: Asset (as its value is increased)
CR: Foreign Currency Translation Reserve

The bottom line is this: unrealised currency gains on non-monetary items are included in the unit price calculation, but the gain is sitting as equity rather than profit, up until the asset is sold.

Hope this helps.

– Steve

As you have said, you are not an expert, and your analysis is incorrect, which is a pity.

Appraisals are independent. Most currency gains, as required per Accounting Standards, are unrealised at this time and sit in the FCTR rather than the P&L.

The difference between the buy and redemption price is due to the redemption price being adjusted for imputed sales costs (which are not allowed to be deducted under Accounting Standards but need to be adjusted on the redemption unit price. Normally there would be a corresponding foreign tax offset but this is foregone by redeeming before the asset is sold).

Note the redemption price does not take into account the distributions received.

As for the accounts not stacking up… There is a team of four qualified accountants on staff, plus an independent CPA in the US, plus the accounts are audited by Moore Stephens.

Steve

• This reply was modified 8 years, 10 months ago by  Steve McKnight.

Hey MilkTruck,

Welcome to the Forum.

Nothing like a little controversy or for a first post, hey?

I wonder… are you normally a Liberal or Labor voter?

– Steve

Mentor. Guru. Expert. Etc.

People are always chasing down someone to hold their hand and guide them through the maze, and fair enough, because there are plenty of bad role models out there, or no role models and people are making it up as they go along.

It seems to me that some people like to figures things out with minimal help. I say, sincerely, ‘knuckle down’ because that is certainly the more difficult road. That said, sometimes it is necessary where there is no one available to help you, or no information handy.

Surely the smarter way is to leverage the knowledge of others, and by doing so, seek to fast track by avoiding their mistakes and accelerating your progress based on their ‘secret paths’.

Your mentor could be an author, or it could be a coach. It depends on what you are looking for and how hands on you want the person to be. What I would recommend is finding someone who is experienced in the ways you are seeking to adopt / emulate.

And do your research. The wealth creation industry is filled with people who talk a good game but have never been on the field.

All the best,

– Steve

Good point about the ‘single post’ promoting discussion, but it wasn’t a set up.

I always think twice about responding to posts I have an interest in, but as it was one of the only posts that didn’t have a response, I wanted to contribute.

– Steve

Hi Nathan,

A couple of issues here…

1. If you are doing this as a business (as you seem to have indicated above), then profits are ordinary income, not capital gains. This means that you will pay income tax on all your profit when you sell. Be aware that if your taxable income spikes in any one year then you will be pushed into a higher tax bracket. Some good tax advice would be well worthwhile.

2. Remember that there will be GST on the new property. You ought to get good tax advice on this to ensure the amount of GST you have to remit is as low as possible. It may be there is specific wording needed for the sale contract to facilitate this (such as GST calculated on the margin scheme, if applicable).

Sounds like a trip to the accountant is on the cards.

– Steve

A quick post to let you know that we are still working full time behind the scenes with more upgrades.

Next on the list is a member dashboard to replace the current welcome page after sign in that contains a range of useful information about latest information.

– Steve

Hi,

If you made a post selling these items then the best thing to do is to make a reply saying they have now sold.

We don’t like to delete old posts as it messes with the continuity of the forums.

– Steve

We tried to ‘hide’ the email as such to stop bots scraping the forum.

I’m not against returning back to displaying email addresses, but it is an issue that it is not working with gmail.

As I said, I’ll get the team on it and see what can be done.

While I have you, can you take a look at this post for me – it’s finance related:
https://www.propertyinvesting.com/topic/4990398-help-needed-40/

– Steve