Microsoft Money and MSN Money do not have a specific way to handle mergers or stock spin-offs.
An example of a spin-off is when for every share of XYZ Corporation you own, you receive n shares of ZYX Company.
An example of a merger is when each share of XYZ Corporation you own is converted to n shares of ZYX Company.
The main problem is how to correctly allocate the original cost basis for the new total number of shares, in order to report gains or losses correctly.
This article describes possible ways to track these activities in Money and Investor.
Microsoft Money 2003 and later versions have added a feature to add spin-offs and mergers. To add spin-offs and mergers in Money 2003 and later versions, follow these steps:
- In Money, go to the Portfolio.
- On the left, click Record a Special Activity.
- Select to record either a spinoff or a merger.
Money uses Remove Shares and Add Shares transactions to perform this special activity.
If you want to track the merger or spin-off transactions manually, use any one of the following methods.
Make sure that you use the information that is provided by your broker or by the company when you calculate the values for the transactions in any one of the following methods.
Handling a spin-off
Return of Capital
Use the proceeds from a Return of Capital transaction on the original security to purchase the new shares in the new company. This is the simplest and recommended way.
Treat the transaction as a split based upon the spin-off ratio; sell the additional shares generated and purchase the same number of shares in the new company. The problem with this method is that it generates an incorrect gain/loss on the original security, and reflects an incorrect number of shares for prior transactions.
Manually adjust the price (cost basis) of each and every transaction for XYZ based upon the spin-off ratio, and then enter the Buy transaction for the new shares of ZYX.
Handling a merger
Split the original security according to the merger ratio, and then change the security name and symbol to the new symbol. The problem with this method is that you lose the history of actual ownership, and you have a split in the Price History that never really occurred. This is the recommended method.
Sell and Buy
Sell the shares of the original security and use those funds to purchase the new shares of the new security. The problem with this method is that it generates a gain/loss that has not really occurred.
Remove and Add
Remove the shares of the original security and add the shares of the new security. This method is not recommended because the Add Shares activity has a zero cost basis, which results in Money reporting the realized and unrealized gain incorrectly. However, you do not have to calculate the cost basis using this method.
Detailed steps for each method
All of the methods described in this section use the following example data:
1/1/98 Buy 100 shares of XYZ at $10 2/1/98 Buy 100 shares of XYZ at $11 3/1/98 Reinvest $120 Dividend to buy 10 shares at $12 each Total Cost Basis is $2220 for an average of $10.57141 for each of the 210 shares. The ratio for the spin-off or merger is 0.2, or for every 1 share of XYZ, you get 0.2 shares of ZYX, which equals 42 new shares of ZYX. The spin-off or merger event occurs on April 1,1998.
The amount for the total cost-basis for all the new shares in the case of a spin-off should be retrieved from your brokerage statement. But you can calculate the approximate amount as follows:
(Cost Basis) - (Cost Basis)/(1 + ratio) Using the example data above results in the following values: Cost basis : $2220 - $2220/1.2 = $370 Share of ZYX : 210 * 0.2 = 42 Price per share: $370/42 = $8.81
Return of Capital (Spin-off)
On the date of the spin-off, enter a Return of Capital transaction for the amount of the cost basis transferred to the new security. Then, enter a Buy transaction for the number of shares gained and the price per share, as the Return of Capital amount divided by the number of shares.
Using the example data results in the following two transactions:
4/1/98 Return of Capital for XYZ of $370.00. 4/1/98 Buy 42 shares of ZYX at $8.81 each.
This is best described using the example.
The 0.2 ratio means that for every share you had, you will now have 0.2 shares. That is, 252 total shares: 210 of XYZ and 42 new ZYX shares.
Because you cannot have a fractional split, you need to round up to whole numbers. Therefore, enter the split as 242 shares for every 210 for XYZ (or the simpler ratio, 6 for every 5).
Then, enter the following transactions:
4/1/98 Sell 42 shares of XYZ at $8.81 each. 4/1/98 Buy 42 shares of ZYX at $8.81 each.
Manually Adjusted (Spin-off)
This method requires the most work. You need to manually adjust the price of each transaction prior to the spin-off event by the spin-off ratio, in other words: (price) / (1 + ratio)
Using the example data, the transactions would change to
1/1/98 Buy 100 shares of XYZ at $8.3333. 2/1/98 Buy 100 shares of XYZ at $9.1667. 3/1/98 Reinvest $120 dividend to buy 10 shares at $10.00 each.
and then you would enter the following Buy for ZYX:
4/1/98 Buy 42 shares of ZYX at 8.50 each.
Enter the split based upon the ratio. Then, go to Investment Details and change the investment name and symbol. You may also want to include a note in the Comment or Memo field about what happened.
Using the example, you would enter 42 shares for every 210 shares (or the simpler ratio, 1 for every 5).
This results in all prior transactions changing their number of shares and price per share based upon the split ratio.
Using the example data, the transactions would be:
1/1/98 Buy 20 shares of ZYX at $50. 2/1/98 Buy 20 shares of ZYX at $55. 3/1/98 Reinvest $120 dividend to buy 2 shares at $60 each.
Sell and Buy (Merger)
Sell all the shares of the original security and Buy the ratio number of shares of the new security. Use the total cost basis of the original shares as the sale price and as the purchase price of the new security. Remember to adjust for the ratio. By selling at the actual cost basis the total Gain will become zero even though individual gain/loss amounts in Money for each lot may not be zero.
Using the example data, you would enter the following transactions:
4/1/98 Sell 210 shares of XYZ at $10.57141 each 4/1/98 Buy 42 shares of ZYX at $52.857143 each
Remove and Add (Merger)
This method is similar to the Sell and Buy method described earlier, but uses the Add Shares and Remove Shares activities.
Using the example data, you would enter the following transactions:
4/1/98 Remove 210 Shares of XYZ. 4/1/98 Add 42 Shares of ZYX.
The problem with this method is that the Gain calculations assume that you lost the entire cost basis for XYZ, and that ZYX cost nothing.