Having a bit of a crisis, it is Mid-January so t's the season for it.
We have a client who has a large mixed fund in USD. We converted all transactions into pounds at the transaction date so we can ensure gains are taxable correctly.
There is deviation from cash balance as losses are allocated to clean capital only as a proportion that relates to clean capital (i.e. the income and gains are untouched). We also have the issue that gains are computed using the same day/next 30 days whilst the base cost from the security mixed funds is based on the holding removed. So the proceeds per the bank and the transfer in are unlikely to match. This deviation is rather large. I am taking this deviation into account when working out the currency movement (whether this should actually be done is something I wasn't sure but was told to do).
How should we treat when he goes into overdraft? What we have been doing is the following and I am not convinced this is right
1. Purchases are made of shares so the constituent parts are eradicated and the balance is overdraft. The security mixed fund mimics this. The overdraft is repaid by means of a loan. The loan offsets against the loan in the cash account and I can then recategorise the overdraft in the security mixed fund. This makes sense.
2. Where it becomes tricky is when the overdraft is partially repaid by loan and then sales or just repaid by sales. We are treating what is leaving the security mixed fund as an offshore transfer but then offsetting against the overdraft insofar as there is overdraft and any sales after this is then introduced in its constituent parts. This does not work in my head.
What I am expecting is that we need to recategorise the funds used to purchase the overdraft, however this becomes cyclical where what was purchased is then sold. Unless we ignore the ones where purchased into overdraft and sold by subsequent disposals to repay. Thereby bring able to recategorise the purchase of other securities?
I am at a loss. Its getting quite late in the day and I was hoping to get an independent opinion. It's the kind of thing that's affecting other work and outside of work. I of course want to do it right.
This issue is made worse by the fact that the balance eventually gets low because of deviation as mentioned above that it remains overdrawn, though in cash terms it is positive. At the start the pattern of the mixed fund follows that of cash, but this stops.
Sorry for the length, I hope it makes sense. Any advice is greatly appreciated.
I hope you all are having a better busy season than I.