Accumulation Units
Some unit trusts issue units that accumulate the income. Every six months, the income is reinvested and a voucher issued showing the deemed income and the tax deducted at source. Often, the holder may not actually receive any new units. In this case, the effect is just to increase the cost of the original units.
Two entries are required to post the reinvested income. The first is a dividend recording the income and the tax deducted at source. Instead of debiting a bank account with the net income, a suspense account is used. The second entry is a cost write-up which increases the cost of the investment. If new units are issued, then a CWU entry should be made as it is in effect the same as a fresh purchase. This situation is very similar to that for a stock dividend shown below. However, if no new units are issued then an A4 write-up should be used to increase the cost of the original acquisitions. For either type of cost write-up the suspense account is used instead of the bank account to credit off the income entry.
|
Movement code |
CGT/Accounting rule |
Description |
|
DIV |
V1/Income/Expense |
Dividend |
|
CWU |
A1/Adjustment to Cost |
Cost write-up (if new units issued) |
|
COU |
A4/Adjustment to Cost |
Cost write-up (apportioned) (if no new units) |