What is Buy Average? How Is It Calculated?

The buy average is also called the average cost or cost basis. It is the price at which you purchase your shares. You calculate it by dividing the total cost of the shares by the total number of shares purchased.

Have a glance at the following example to understand the calculation:

Let's say you purchased 100 shares for Rs. 10 per share, but these shares are partly paid, and you have only paid 50% of the total cost so far. Therefore, you have paid Rs. 500 (50% of Rs. 10 per share * 100 shares).

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To calculate the buy average, you need to consider both the payment made and the remaining payment due. In this case, the total cost of the shares would be Rs. 1,000 (100 shares * Rs. 10 per share). The remaining payment would be Rs. 500 (50% of Rs. 1,000).

To calculate the buy average, divide the total cost by the total number of shares:

Buy Average = Total Cost / Total Number of Shares

In this example, the calculation would be as follows:

Buy Average = Rs. 1,000 / 100 shares Buy Average = Rs. 10 per share

Therefore, the correct buy average for your partly paid shares would be Rs. 10.

Furthermore, let's delve deeper into calculating the correct buy average for partly paid shares and explore additional factors that may affect the calculation.

Multiple Purchase Prices

Sometimes, you may have acquired shares at different prices. For example, you may have purchased 50 shares at Rs. 10 per share and an additional 50 at Rs. 12 per share. In such scenarios, you would need to calculate the total cost for each batch separately and then determine the overall buy average. The calculation would involve multiplying the number of shares purchased at each price by the respective purchase price, summing up the total costs, and dividing it by the total number of shares.

Varying Payment Percentages

While partly paid shares typically involve a predetermined payment percentage, different payments may apply to different batches.

• For instance, you may have paid 50% for the first 50 shares and 75% for the next 50. In such cases, the calculation would incorporate varying payment percentages to determine the total cost and the correct buy average.
• Each batch's cost would be calculated by multiplying the respective payment percentage by the purchase price, and the total cost would be the sum of these batch costs.

Additional Costs Or Fees

Apart from the purchase price and partial payments, other costs or fees may be associated with acquiring shares, such as brokerage fees, transaction charges, or taxes.

• These costs should be included in the total cost of the shares when calculating the buy average.
• To obtain an accurate cost basis, it's essential to consider all relevant expenses incurred during the purchase process.

Foreign Currency Exchange

Suppose the shares were purchased in a different currency than your base currency. Converting the purchase price and partial payments into your base currency is crucial before calculating the buy average. Exchange rates at the time of purchase and payment should be applied for accurate conversions. This ensures consistency and uniformity in the calculation, particularly if you hold shares in different currencies.

Adjustments for Corporate Actions

Corporate actions such as stock splits, bonus issues, or rights offerings may occur after the initial purchase of partly paid shares. These actions may impact the number of shares held or the payment obligations. Adjustments for such corporate actions should be considered when calculating the buy average to reflect the revised number of shares and any changes in payment obligations.

Professional Assistance

Calculating the correct buy average for partly paid shares can become complex, especially when dealing with multiple purchase prices, varying payment percentages, or other factors specific to your situation. In such instances, seeking guidance from a financial professional, such as an accountant or financial advisor, can help ensure accurate calculations and compliance with accounting standards and regulations.

Final Thoughts

By considering these additional factors and seeking appropriate assistance, you can determine the correct buy average for your partly paid shares, providing a reliable basis for financial reporting, tax purposes, and investment decision-making.

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