# ASC 505-946: Equity — Financial Services—Investment Companies

Source: FASB Accounting Standards Codification, Basic View

[Read online](https://asc.understandingaccounting.org/asc/505/946/)

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## ASC 505-946: Equity — Financial Services—Investment Companies

### Machine-generated study aids

```json
{
  "summary": "This Subtopic governs equity transactions and reporting for investment companies, focusing on capital share transactions and distributions to shareholders. It requires per-class disclosure of net asset value per share and the components of the net change in net assets from capital share transactions, along with tax-basis components of dividends paid. Return of capital is determined only at the fund level, not per class.",
  "key_points": [
    "Net asset value per share must be disclosed for each class of shares (505-946-50-1).",
    "The net change in net assets from capital share transactions must be disclosed by class, showing the number and value of shares sold, shares issued in reinvestment of distributions, the number and cost of shares reacquired, and the net change (505-946-50-2).",
    "Net assets at the beginning and end of the year must be disclosed, and the ending balance must agree with the statement of assets and liabilities or statement of net assets (505-946-50-3).",
    "For financial reporting, a return of capital is not determined at the class level, and distributable earnings is disclosed only at the fund level (505-946-50-4).",
    "Notes must disclose the tax-basis components of dividends paid: ordinary income distributions, long-term capital gains distributions, and return of capital distributions (505-946-50-5).",
    "Notes must explain the primary reasons for any significant difference between GAAP net investment income and net realized gain and actual distributions (505-946-50-6).",
    "Scope follows the Overall Investment Companies Subtopic scope in Section 946-10-15 (505-946-15-1); Section 55 illustrates the record-share, actual-income-available, and simultaneous-equations methods for calculating distributions from net investment income."
  ],
  "categories": [
    "Disclosure",
    "Industry-specific",
    "Debt and equity",
    "Financial statement presentation"
  ],
  "audience_level": "intermediate",
  "student_note": "Mutual fund financial statements live or die on the statement of changes in net assets; know that share-transaction detail (sold, reinvested, reacquired, net change) is required class-by-class. A common misunderstanding is assuming return of capital and distributable earnings are computed per class — under 505-946-50-4 they are fund-level determinations only.",
  "related_topics": [
    "946-10",
    "946-205",
    "946-505",
    "946-830",
    "505-10",
    "740-10"
  ],
  "key_concepts": [
    "net asset value per share",
    "capital share transactions",
    "multiple classes of shares",
    "distributions to shareholders",
    "return of capital",
    "tax-basis components of dividends",
    "equalization accounting",
    "net investment income"
  ]
}
```

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## ASC 505-946-05: 05 Overview and Background

[Read section](https://asc.understandingaccounting.org/asc/505/946/#05-overview-and-background)

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##### [505-946-05-1](https://asc.understandingaccounting.org/asc/505/946/#505-946-05-1)

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This Subtopic addresses equity transactions and reporting for investment companies, including distributions to shareholders.

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## ASC 505-946-15: 15 Scope and Scope Exceptions

[Read section](https://asc.understandingaccounting.org/asc/505/946/#15-scope-and-scope-exceptions)

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#### Overall Guidance

##### [505-946-15-1](https://asc.understandingaccounting.org/asc/505/946/#505-946-15-1)

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This Subtopic follows the same Scope and Scope Exceptions as outlined in the Overall Subtopic, see Section 946-10-15.

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## ASC 505-946-50: 50 Disclosure

[Read section](https://asc.understandingaccounting.org/asc/505/946/#50-disclosure)

SEC content: no

#### Net Asset Value per Share

##### [505-946-50-1](https://asc.understandingaccounting.org/asc/505/946/#505-946-50-1)

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[Net asset value per share](https://asc.understandingaccounting.org/glossary/n/#net-asset-value-per-share "Net asset value per share is the amount of net assets attributable to each share of capital stock (other than senior equity securities, that is, preferred stock) outstanding at the close of the period. It excludes the effects of assuming conversion of outstanding convertible securities, whether or not their conversion would have a diluting effect.") shall be disclosed for each class of shares.

#### Capital Share Transactions

##### [505-946-50-2](https://asc.understandingaccounting.org/asc/505/946/#505-946-50-2)

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The net change in net assets (excluding amounts shown separately if equalization accounting is used) arising from capital share transactions shall be disclosed for each class of shares. All of the following components of the change shall be disclosed on the face of the statement or in the notes to financial statements for each class of shares:

1.  a
    
    The number and value of shares sold
    
2.  b
    
    The number and value of shares issued in reinvestment of distributions
    
3.  c
    
    The number and cost of shares reacquired
    
4.  d
    
    The net change.

#### Capital Contributions

##### [505-946-50-3](https://asc.understandingaccounting.org/asc/505/946/#505-946-50-3)

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Net assets at the beginning of the year and at the end of the year shall be disclosed. The balance of net assets at the end of the year shall agree with the comparable amount shown in the statement of assets and liabilities or in the statement of net assets.

#### Multiple-Class Funds

##### [505-946-50-4](https://asc.understandingaccounting.org/asc/505/946/#505-946-50-4)

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For financial reporting purposes, a [return of capital](https://asc.understandingaccounting.org/glossary/r/#return-of-capital "Distributions by investment companies in excess of tax-basis earnings and profits.") is not determined at the class level and distributable earnings is disclosed only at the fund level.

#### Dividends Paid

##### [505-946-50-5](https://asc.understandingaccounting.org/asc/505/946/#505-946-50-5)

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All of the following tax-basis components of dividends paid shall be disclosed in the notes:

1.  a
    
    Ordinary income distributions
    
2.  b
    
    Long-term capital gains distributions
    
3.  c
    
    Return of capital distributions.

#### Difference Between Net Investment Income and Net Realized Gain and Actual Distributions

##### [505-946-50-6](https://asc.understandingaccounting.org/asc/505/946/#505-946-50-6)

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The primary reasons for any significant difference between total net investment income determined in accordance with generally accepted accounting principles (GAAP) and net realized gain and actual distributions shall be disclosed in the notes to financial statements.

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## ASC 505-946-55: 55 Implementation Guidance and Illustrations

[Read section](https://asc.understandingaccounting.org/asc/505/946/#55-implementation-guidance-and-illustrations)

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#### Illustrations

##### [505-946-55-1](https://asc.understandingaccounting.org/asc/505/946/#505-946-55-1)

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This Example illustrates the [record-share](https://asc.understandingaccounting.org/glossary/r/#record-share-method "A method to calculate distributions to shareholders from net investment income in which the sum of net investment income available for all classes after deducting allocated expenses, but before consideration of class-specific expenses, is divided by the total outstanding shares on the dividend record date for all classes to arrive at a gross dividend rate for all shares. From this gross rate, an amount per share for each class (the amount of incremental expenses accrued during the period divided by the record date shares outstanding for the class) is subtracted. The result is the per-share dividend available for each class."), [actual-income-available](https://asc.understandingaccounting.org/glossary/a/#actual-income-available-method "A method to calculate distributions to shareholders from net investment income in which actual net investment income that has been allocated to each class (as recorded on the books) is divided by the record date shares for each class to derive the dividend payable per share."), and [simultaneous-equations](https://asc.understandingaccounting.org/glossary/s/#simultaneous-equations-method "A method to calculate distributions to shareholders from net investment income that seeks to ensure, by using simultaneous equations, that the distribution rates will differ among the classes by the anticipated differential in expense ratios.") methods generally used to calculate distributions to shareholders from net investment income.

-   ![ ](https://asc.understandingaccounting.org/asc-img/GUID-C43E1DB4-278D-421C-8CC3-5C21DEF4B1B7-low.gif)
    
    Total Class A Class B Assumptions: Net investment income before class specific expenses " $1,000,000 " Class-specific expenses: Class A " $13,000 " Class B " $59,000 " Record date shares outstanding " 5,000,000 " " 2,000,000 " " 3,000,000 " Record Share Method Net investment income before class specific expenses " $1,000,000 " Total record date shares outstanding " 5,000,000 " Gross dividend rate for all shares $0.2000 $0.2000 $0.2000 Per share class-specific expenses: "Class A ($13,000 ÷ 2,000,000)" (0.0065) "Class B ($59,000 ÷ 3,000,000)" (0.0197) Per share dividend for each class $0.1935 $0.1803 Actual Income Available Method Actual net investment income recorded on books of each class " $928,000 " " $417,600 " " $510,400 " Record date shares outstanding for each class " 2,000,000 " " 3,000,000 " Per share dividend for each class $0.2088 $0.1701 Simultaneous Equations Method "EQUATION #1: A + B = $928,000" Where—A and B represent the total dividend amounts to be paid to each class. "EQUATION #2: (A ÷ 2,000,000) - (B ÷ 3,000,000) = (0.5% x $10.50) ÷ 4" Where "2,000,000 and 3,000,000 represent the record date shares of each class" 0.5% represents the expense differential between Class A and Class B $10.50 represents the average daily net asset value of the fund 4 refers to the fact that the dividend period is a quarter Solving the above simultaneous equations produces the following results: Total Class A Class B Total dividends to be paid " $928,000 " " $386,961 " " $541,039 " Record date shares outstanding for each class " 2,000,000 " " 3,000,000 " Per share dividend for each class $0.1935 $0.1803 Annualized distribution rates to average daily net asset value 7.37% 6.87% Difference in distribution rates 0.50%

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## ASC 505-946-S50: SEC 50 Disclosure

[Read section](https://asc.understandingaccounting.org/asc/505/946/#sec-50-disclosure)

SEC content: yes

#### Issuance and Repurchase by a Registered Investment Company of Its Own Securities

##### [505-946-S50-1](https://asc.understandingaccounting.org/asc/505/946/#505-946-S50-1)

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See paragraph [946-10-S99-3](https://asc.understandingaccounting.org/asc/946/10/#946-10-S99-3), Regulation S-X Rule 6-03(i), for the required disclosures pertaining to the issuance and repurchase by a registered investment company of its own securities.