Hedge Fund Course - Wiley Finance Series

The value of the asset depends on what cost was removed from the ledger at the time of the sale. Here are the journal entries of the position as it was acquired: Buy 10,000 XYZ at $10
XYZ common $100,000
Cash $100,000
Leverage
Buy 15,000 XYZ at $12.50
XYZ common
$187,500
Cash
$187,500
Before the sale, the fund carried 25,000 shares at $287,500 or an average cost of $11.50. If the fund uses this average as the cost basis, the accountants will remove $57,500 from the value of XYZ Common (5,000 x $11.50) versus sale proceeds of $75,000.
Remove 5,000 XYZ at $11.50
Cash
$75,000
XYZ common
$57,500
Gain on sale of XYZ
$17,500
If the hedge fund used the average cost of $11.50, the remaining position in XYZ common would be carried at $230,000 ($287,500 ­ $57,500 or 20,000 shares x $11.50). However, if the accountants removed the $10 shares:
Remove 5,000 XYZ at $10.00
Cash
$75,000
XYZ common
$50,000
Gain on sale of XYZ
$25,000