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How to enter bond income that includes "principal"?

Hi all. I'm in Australia, using Quicken (Reckon) Home & Business 2013.
I have only just realised that some of my bond income transactions include a "principal" component. It seems that this represents a partial payback of the original bond, since the reported value of those bonds is dropping.
How should I record that principal component, so that it also changes my holding? I don't see any change in "Face Value", but there are notations of "Bond Factors" that mean nothing to me.
Thanks!

Best Answer

Answers

  • Rocket J Squirrel
    Rocket J Squirrel SuperUser, Windows Beta ✭✭✭✭✭
    I know nothing about Reckon. But if you are getting back some principal and the market value is dropping accordingly, you can simply enter a Sell transaction for the amount in question.
    Quicken user since version 2 for DOS, now using QWin Premier Subscription on Win10 Pro.
  • Frankx
    Frankx SuperUser ✭✭✭✭✭
    HI @adslimq2,

    It seems to me that you would need to report the reduction in the "principal" portion of the bond "value" regardless of whether there is a decrease in the "face amount/value".

    Effectively it is a "return of capital" and (at least under US tax principles) is non-taxable.

    Frankx


    Quicken H&B-Subscription - Ver. R29.20 - Build 27.1.29.20  - Windows 10 Home - Ver. 2004
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  • q_lurker
    q_lurker SuperUser ✭✭✭✭✭
    In US tax policy, IF you paid a premium for a bond (something over the face value at maturity), you may be allowed to consider part of the interest received as an amortized bond premium. 

    For me I then treat that as three transactions
    1)  An IntInc transaction for full face value of the interest payment received 
    2)  A RtrnCap transaction that reduces my basis in the bond
    3)  A MiscExp transaction that 'spends' that RtrnCap amount and is categorized to the applicable interest income category (typically _IntIncTaxFree for a municipal bond.

    Cash-wise, the second and third transactions counteract each other -- no net change in cash.  The financial institution provides the data for the RtrnCap/MiscExp amount.

    Bottom line, if you are getting some of your principle back, it is likely a RtrnCap transaction is in order.     
  • adslimq2
    adslimq2 Member
    Thanks!

    I hadn't seen the "Return of Capital" option - but that's exactly what I needed.

    Fortunately, since this is my SMSF and I am exceedingly old, we don't get taxed on any of this in Australia.

    All the best.
  • Frankx
    Frankx SuperUser ✭✭✭✭✭
    HI @adslimq2,

    Inform me - is an "SMSF" in any way related to a Superannuation Fund??  I am reaching a bit into my memory here...

    Frankx


    Quicken H&B-Subscription - Ver. R29.20 - Build 27.1.29.20  - Windows 10 Home - Ver. 2004
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  • adslimq2
    adslimq2 Member
    Sorry - Self Managed Superannuation Fund.
  • Frankx
    Frankx SuperUser ✭✭✭✭✭
    Ah-ha!!!!  I didn't recognized the "self-managed" part but I am VERY familiar with superannuation funds!  Spent a bunch of time in Australia and loved every minute of it! 
    Hope you haven't been enduring the covid issues relative to Melbourne recently and hope that all is good for you & yours going forward!

    Frankx


    Quicken H&B-Subscription - Ver. R29.20 - Build 27.1.29.20  - Windows 10 Home - Ver. 2004
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  • adslimq2
    adslimq2 Member
    Thanks, Frankx. Fortunately we are in Brisbane, so very safe. I hope you all are!

    However, I seem to still have a problem with this. Entering income as a Coupon payment and a separate Return of Capital does not change the Market Value and increases the Cost Basis!

    I can't "Sell" some, as I don't know price or number.
  • adslimq2
    adslimq2 Member
    Sorry! Should have said it reduces the Cost Basis.
  • q_lurker
    q_lurker SuperUser ✭✭✭✭✭
    edited November 2020
    If you are getting back some of the principal, why wouldn't that reduce your basis?

    Market Value is a different animal, unrelated to your basis or principal value.  
  • adslimq2
    adslimq2 Member
    I'm in uncharted waters here, as I don't really understand what is happening, even though I've used Quicken for ~20 years.

    The problem is it that my bond holding report from the broker shows that the Current Face Value has fallen - which I assume represents the reduction of Holdings? I have updated the Security Price in Quicken. Quicken still shows the same Market Value as originally entered, even though I assume it should have reduced by the capital return.

    Please tell me if I am making incorrect assumptions!
  • adslimq2
    adslimq2 Member
    Thanks, I'll try the Sell option. It doesn't need to be exact, but it sounds like it will be a reasonable hack.

    Cheers all!
  • adslimq2
    adslimq2 Member
    The Sell transactions worked close enough. Thanks, again.
  • q_lurker
    q_lurker SuperUser ✭✭✭✭✭
    @Rocket J Squirrel
    It's been some time since I had a real-life security (unit investment trust) which periodically returned capital (with downloaded RoC transactions from my brokerage). Each time it did, my Market Value decreased, as expected. The Market Value graph in the Security Detail View looked like a staircase descending to the right.
    The only way that makes sense is the the current price dropped at the same time in the same (or similar) amount.  Market value is price times shares.  No other transactions or transaction history involved.  

    Now it makes sense in the real world that as a security pays back some of its value, the price also drops.  This happens when a security goes ex-div, but then it is usually a rather small amount and can be lost in the other day-to-day variations.  With a more significant payout on an investment that intends to make such payouts, price will drop because the remaining holding is worth less than before the payout.

    For your fake security, you would need to be adjusting the price along with each RtrnCap distribution.     

    @adslimq2 -- if the sells work for you, go for it..
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