FAQ – If, after 1 October 2001, an investor were to add monthly to units in a unit trust fund acquired before valuation date and then sell all the units how would the loss/gain be calculated?

​Two features of the legislation reduce the record-keeping required of a monthly investor in a unit trust.

 
The weighted average cost method is one of three asset identification methods for determining the base cost of identical assets such as unit trusts. The other methods permitted are specific identification and first in, first out (FIFO).
 
In essence, the method involves keeping running totals of the number of units bought and sold in a particular fund. It is best explained by way of an example.
Example:
Units in a unit trust are purchased on dates indicated.
 
Date​ No. of units ​ Cost per Unit ​ Cost​
1 October 2001​ 100​ 15.00​ 1500​
1 November 2001​ 50​ 16.00​ 800​
1 December 2001​ 150​ 17.00​ 2550​
1 January 2002​ 100​ 13.50​ 1350​
Balance​ 400​ 6200​

 

On 28 February 2002 125 units are sold for R2 125.00
The weighted average unit cost is R6 200 / 400 = 15.50
The base cost of 125 units is therefore 125 x R15.50 = R1 937.50.
The capital gain is R2 125.00 – R1 937.50 = R187.50
 
Date​ No. of units​ Cost per Unit​ Cost​
Balance​ 400​ 15.50​ 6200​
28 February 2002​ -125​ 15.50​ -1937.50​
Balance​ 275​ 4262.50​

 

 
If an additional 100 units were bought for R18.00 each on 1 April 2002, the weighted average cost may be calculated as follows:
 
Date​ No. of units ​ Cost per Unit​ Cost​
Balance​ 275​ 4262.50​
1 April 2002​ 100​ 18.00​ 1800.00​
375​ 6062.50​

 

The weighted average unit cost is R6 062 / 375 = R16.67
If you have acquired units before and after valuation date, the opening entry on 1 October 2001 in any such calculation would be the number of shares owned on that date and the market value of the shares on that date. Thereafter purchases and sales could be recorded in the normal way.
 
Unit trust management company reporting
 
In order to simplify matters still further, management companies have been given the responsibility of submitting returns of the sale of units by investors. These returns are similar to the annual returns of interest earned that are already prepared by the management companies and disclose the–
  • Number of units disposed of by the unit holder;
  • Cost of those units determined on the weighted average basis;
  • Proceeds on disposal of those units; and
  • Gain derived from, or loss incurred in respect of, the disposal of those units.
Unit holders who do not wish to use the weighted average cost method to determine capital gains on the disposal of their units are not bound by this return. However, they will have to keep the records necessary to support the alternative they select.
 
Unit holders who adopt the weighted average method are obliged to adopt the method for all their units in the various unit trusts in which they have an interest. For example if a unit holder holds units in three different unit trusts and adopts weighted average for one of them, he or she will also have to use the method for the other two.

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