Tracking the Book Value of Investments

Tracking the Book Value of Investments

Most public charities and foundations track investments at market. Those that keep Book value usually do so to provide an historical perspective on appreciation, as a rough indicator of investment performance. Some organizations also need to keep Book value for trust form Funds.

There is little need to track Book value for individual Funds. Funds in a Pool can generally withdraw their investments from the Pool at full market value at any time. If a Fund withdraws more than its Book value, the other Funds compensate with a proportionate Realized Loss and an equivalent Unrealized Gain.

Book dollars in fixed income investments are more secure than unrealized gains on equities, which are merely potential. However, the Book value of equities is no more secure than the unrealized gains. If the market drops, the investment value could go below Book.

You can track Book value at three different levels in FIMS. However, you must decide how you want to track the value before you create your Pool. You cannot retroactively change the setting.

Tracking Book Value for Investment Accounts and the Pool in FACTS

If you want to monitor the growth of your investments, you can track Book and Market at both the Account and Pool level in FACTS. You can also make organizational entries in General Ledger that will be available on consolidated financial statements.

1. When you create your Pool record, select the Use Book Balances checkbox. Refer to Creating Pool Records for more information.

2. On the GL Account tab for the Pool record, enter the natural account number for the Pooled Asset Account in both the Fund Asset Account and GL Adjustments to Market fields.

NOTE: Once you configure these settings, the Ending Book Value for Funds will show an accumulating value on the Funds tab, but without beginning Fund level Book values or any Special Book Adjustments (which is not accurate). The Unitization Report will also display Book values for Funds by default (which will not be accurate without Beginning Balances). However, you can prohibit this option at run-time, if desired.

If you want to manually enter Pool level Book values for financial reports, you must create organization level accounts in General Ledger. This is unusual, because General Ledger accounts are generally created at the Fund level.

If you create these organizational accounts, the assets you enter will already be tracked at the Fund level, so you will need to eliminate them in any reporting. The best way to do this is to debit a Pool Assets at Book account and credit a Contra account. Once you create these accounts and enter offsetting Beginning Balances, you can periodically create General Ledger Journal entries to track the changes to Book. The Book value will then be available for Consolidated Financial Statements.

1. In the General Ledger module, click the Accounts supertab and then click the Accounts tab.
2. Click the New button on the toolbar to create a new account.

NOTE: Refer to Creating Individual General Ledger Account Records in the General Ledger module for more information

3. In the sixth segment of the Account Key, enter a unique natural account number.

NOTE: You can also use an optional Division code of Z to force these accounts to sort at the end of the General Ledger. It is not always necessary to tie an account to a Fund. If you are adding an unlinked account, you should include a contra asset account to ensure that a casually run financial statement will not reflect an incorrect balance.

4. In the Account Type field, you should generally enter A1 (Current Assets). If you are creating a Contra Account, enter A2 (Contra Assets) in this field.

Tracking Book Value for Funds in FACTS (Not General Ledger)

If Donors want to see Book value on Fund statements, you may want to track it in General Ledger. If you want to occasionally report Book value at the Fund level, but not routinely report it on Fund Statements, you can track it in FACTS without posting back to General Ledger.

NOTE: If any assets of a Fund in the Pool are transferred to another Fund in the Pool, there is no standard way to transfer the relative Book and Market values intact. This can only be accomplished with custom programming.

1. In FACTS, click the Pool tab and then click the New button on the toolbar to create a new Pool.
2. Select the Use Book Balances and the Use Special Book Adjustment checkboxes. This ensures that Fund level Book value is maintained accurately by compensating when a Fund withdraws more than its Book value from the Pool.

Since no securities are actually sold, the Fund is given realized dollars from other Funds. To make this equitable, FACTS will allocate the Realized Loss and an equivalent Unrealized Gain among the other Funds, so each Fund’s Market Value in the Pool remains the same.

3. On the GL Account tab for the Pool record, enter the natural account number for the Pooled Asset Account in both the Fund Asset Account and GL Adjustments to Market fields.
4. Use the Autobuild FACTS Initial Fund Values utility to build the Pool.
5. Use the Establish Initial Fund Values utility to enter the beginning Book value for each Fund. FACTS will then automatically maintain the book values for the Fund. You can view these values on the Funds tab for each Pool.

Tracking Book Value for Funds in FACTS and General Ledger

If you choose to track the Book value of Pooled investments in General Ledger (at the Fund level), it will automatically be maintained by postings from FACTS.

IMPORTANT: If you use this method, only debits and credits to the Book account will create FACTS Transactions. This raises special issues if a Fund withdraws more than its Book value from the Pool. This entry must be made to the Book account, which would drive it into a credit balance. Therefore, it will not accurately reflect the Book and Market kept in FACTS, where the Special Book Adjustment allocated this negative book to the other Funds. You must remember to debit the Book account to bring it to zero, and credit the Adjustment to Market account for the same amount.

IMPORTANT: In order to prevent the debit to the Book account from flowing into FACTS, you must use a Journal Key of FA on these Transactions.

1. In the General Ledger module, create two Asset Accounts (with an Account Type of A1) in the Master Chart for Pooled Fund classes, and in the General Ledger for each Pooled Fund. These accounts are the Book Value of Pooled Assets, and Adjustment to Market (Accumulated Unrealized Gains). You can then report the Market value of the investment in financial statements by combining these two accounts. Beginning Balances for both Book and Adjustment to Market must be entered into General Ledger.
2. When you run the Autobuild FACTS Initial Fund Values utility in FACTS, select the Build Book Balances checkbox. This causes the Beginning Book and Market balances in FACTS to be built from the General Ledger balances. The FACTS Beginning Market balance will be the sum of both accounts and the Beginning Book balance will come from the Book account.
3. Follow the instructions for Tracking Book Value for Funds in FACTS, with one exception: On the GL Accounts tab for the Pool record, enter the account number of the Book Value of Pooled Assets in the Fund Asset Account field, and the number of the Adjustment to Market account in the General Ledger Adjustments to Market field. When the FACTS allocations are posted to General Ledger, any Unrealized Gain will be offset to the Adjustment to Market account. All other earnings and fees are offset to the Book Value account.