What is a modified cost base?
Cost -modified base is a formula applied to assets that help people determine how many total assets are the average cost per unit. The use of a formula of a modified cost base is relatively simple, but requires the investor to know how many assets were purchased, how many of them and any fees for commissions associated with the purchase of assets. In countries and areas with capital revenue tax, this figure is used as the total cost of each asset. Most areas make this formula mandatory, but still help investors by allowing them to compare assets with the current market. Almost any type of financial vehicle can be used in this formula, but is most common in stocks and other assets that are purchased in a large volume. If the investor has bought assets for one price, for example, $ 20 in the US (USD) for stocks, then there is no reason to use this formula if there are no significant commissions.
The modified cost base is best used when the investor bought shares of different prices. In order to determine the cost base, the investor must multiply the number of shares with the price. For example, if one financial vehicle is 300 shares for $ 20, then this number will cost $ 6,000. This is done for each different financial vehicle and all commissions prices and all data are added together. The total number is then divided by the number of assets - the number of commissions does not matter - and the resulting number is a modified cost base.
During tax periods, investors with capital profits must report for capital revenue tax. Investors are expected to use the registered value of the cost of the cost of this tax. This usually reduces the amount of money that investors would have to pay the tax because it normalizes the costs.
Although there are advantages for using modified costs, many countries and regions are mandatory for investors. It's because it makes it easierTax and costs are generally more accurate. Investors commonly use this number outside the tax period to see if their average assets on assets are higher or lower than the current market, so they can determine whether they make effective purchase decisions.