PE: Accounting for Capital Distributions

Hi guys I have a question regarding "Accounting for Capital Distributions(*) made by Private Equity funds in the hands of an investor. In the event of a Capital Distribution by a Private Equity fund, the cash distribution reduces the basis (cost) of the investor’s interest in the fund. Only distributions in excess of basis interest are “Capital Gains Realized”. (1) What are the accounting entries for these Capital Distributions? (2) Once all original contributions to PE account have been returned/distributed to investor, does that mean that his cost of asset is now 0? So a valuation statement would show cost basis as 0? (1) I think it may be Dr Bank Account Cr Investment Account (@ cost) Cr Capital Gains Received (@ amount received - cost, if amount received is greater than total cost) (2) If (1) is indeed the case, would that mean that once more than the original amount called/contributed is returned/distributed to investors, the cost basis for the asset is 0. ----------- (*) Definition of Capital Distribution - These are the returns that an investor in a private equity fund receives. It is the income and capital ----------- Thanks Mark

Mark: I believe you have it. If your entire basis has been “returned”, you have no basis going forward and anything after that would be cap gain.

That sounds right. Any additional distributions should just dr cash and cr real gain.