Monday, July 07, 2008

A serious error in calculation - welcome to Yau-ming's hell

I hate doing my capital gain taxes. I hate it because its complicated and it involves a bit of math - and at the end of the day I feel totally out of my depth and feel lousy.

Whats more - after  discussing it with my accountant and book keeper to do it - I invariably have to doublecheck their work in case they screw it up.

Take this issue in question - average pricing. For example - let's say I purchased 500,000 shares in XYZ last year -
  • Purchased 10,000 in January 10,000 x 5 = $50,000
  • Then I sold it for the same amount 10,000 x 5 in May = $50,000
  • Which means I broke even - no profit. zero.
  • Later I bought a further 30,000 x $1 = $30,000 in June, a much lower price.
the system here is FIFO - first in, first out. So by rights  I should not have made a profit - as the first purchase and first sale cancelled each other out and the result was breakeven.

But my blessed book keeper and accountant - did the total average of purchases - and lumped it all together. In other words, she added the shares and the total price and divided them. So she got 40,000 shares divided it by $80,000 - so her calculated purchase per share is  $2.

And therefore I made a profit of $30,000. ???

She however calculates the balance of 30,000 shares back down to $1. @#$%



Ok take a breather....

Actually I can see how these problems occur- stare too long at the EXCEL spreadsheet and you just churn out wrong sums. Tic Tac Toe. It just happens. You blank out.

The thing that scares me now is this- how many other bloody errors are there?


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