OK, here's a question for accountants of various different countries:
What's the cost basis for a stock split? Does the rest of teh world do
it the way the US does it?
For example:
In Jan 1995 buy 100s stock for $10 per share
In July 1997 split 2-for-1
In August 1997, sell 120s stock for $30 per share
I beleive the following is correct for the united states:
My cost basis is $5 per share, and my gains of $25x120 are taxable
as long-term cap gains.
--- would there ever be a case where the cost basis should be $10 for
the first 100 shares, and $0 for the remainder?
--- would there ever be a case where the gains would be considered
'short-term' for some portion of the total?
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OK, that was easy. Here's the harder one: a spin-off:
For example:
In Jan 1995 buy 100s of stock A for $10 per share
In July 1997 receive 1s of stock B for every 20s of stock A.
Stock B is new, and will trade under its own new ticker symbol
as of the date of this split.
-- What's my cost basis for B? is it $0.000 ?
-- What's my cost basis for A? is it $10, or something else?
-- Are these questions supposed to be answered by company A,
or do I just 'guess'?
Note there is still an invarient:
(old price of A) * 20s == (new price of A) *20s + (price of B) * 1s
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--linas
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