Significant Accounting Policies (Policies)

9 Months Ended

Jul. 31, 2020

Significant Accounting Policies Policy

2.1.

Basis of Accounting

The Trust is an investment company for financial reporting purposes in accordance with GAAP and is not registered as an investment company under the 1940 Act nor is it required to register under such act.

Valuation of Gold

2.2.

Valuation of Gold

The Gold is held for the benefit of holders of the Receipts in a custodial account operated by Bank of Montreal at the Royal Canadian Mint (the “Mint”) and is valued, for financial statement purposes, at fair value. Fair value is determined by the London Bullion Market Association (“LBMA”) (PM) Gold Price, which is set using the afternoon session of the ICE Benchmark Administration (“IBA”) equilibrium auction.

The Trust follows GAAP guidance for determining fair value and GAAP requires disclosure regarding the inputs to valuation techniques used to measure fair value. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.

The Trust records its investment in gold at fair value and recognizes changes in fair value of the investment in gold as changes in unrealized gains or losses on investment in gold through the Statement of Operations. Realized gains and losses on the redemption of Receipts, are calculated as the difference between the fair value and cost of gold redeemed. Realized gains and losses are recorded using the specific identification method for cost relief.

Valuation Techniques and Significant Inputs

A valuation hierarchy exists that prioritizes inputs to valuation techniques used to measure fair value. The three levels of inputs are as follows:

–

Level 1.

Unadjusted quoted prices in active markets for identical assets or liabilities that the Trust has the ability to access.

–

Level 2.

Observable inputs other than quoted prices in an active market that are observable for the asset or liability either directly or indirectly. These inputs may include quoted prices for the identical instrument in an inactive market, prices for similar instruments and similar data.

–

Level 3.

Unobservable inputs for the asset or liability to the extent that relevant observable inputs are not available, representing the Trust’s own assumptions about the assumptions that a market participant would use in valuing the asset or liability, and that would be based on the best information available.

The Trust classifies its investment in gold as Level 1 of the fair value hierarchy. There were no re-allocations or transfers between levels during the period.

Issuance and Redemption of Receipts

2.3.

Issuance and Redemption of Receipts

The Trust issues Receipts on a continuous basis pursuant to the Depositary Trust Agreement. Authorized capital is unlimited. There were 991 Receipts issued and outstanding on July 31, 2020 (153,386 Receipts issued and outstanding on October 31, 2019).

Holders of Receipts will receive no distributions.

Subject to certain exceptions, holders of Receipts have the option to redeem their Receipts for physical gold (to be delivered directly to them by the service carrier) subject to payment of a withdrawal and delivery fee to the Initial Depositor, or exchange their Receipts for cash. Changes in the Receipts for the nine months ended July 31, 2020 and July 31, 2019 are set out below:

	Nine Months Ended July 31, 2020			Nine Months Ended July 31, 2019


(Amounts in US$ except for Number of Receipt and per Receipt data)
Number of Receipts Transactions
Opening balance		153,386			153,304
Receipts issued		724			57
Receipts redeemed		(153,119	)		(5	)
Closing balance		991			153,356

Amount of Receipts (at cost)
Opening balance	$	203,584,099		$	203,470,539
Issuances		1,240,156			74,726
Redemptions		(203,225,353	)		(6,713	)
Closing balance	$	1,598,902		$	203,538,552

Net Asset Value per Receipt at period end	$	1,964.90		$	1,427.55

Income Taxes

2.4.

Income Taxes

The Trust is classified as a “grantor trust” for U.S. federal income tax purposes. As a result, the Trust itself is not subject to U.S. federal income tax.

The Trustee has evaluated whether or not there are uncertain tax positions that require financial statement recognition and has determined that no reserves for uncertain tax positions are required as of July 31, 2020 and October 31, 2019.

Investment in Gold

2.5.

Investment in Gold

Changes in ounces of the Trust’s investment in gold and the respective values for the three and nine months ended July 31, 2020 and July 31, 2019 are set out below:

(Amounts in US$ except for ounces data)	Three Months Ended July 31, 2020		Three Months Ended July 31, 2019		Nine Months Ended July 31, 2020			Nine Months Ended July 31, 2019

Ounces of gold
Opening balance		576		153,346		153,386			153,304
Purchases		415		10		724			57
Redemptions		-		-		(153,119	)		(5	)
Closing balance		991		153,356		991			153,356

Investment in gold
Opening balance	$	980,784	$	196,635,576	$	231,758,577		$	186,256,695
Net change in unrealized gain (loss) on investment in gold		253,850		22,273,916		(27,826,164	)		32,598,650
Net realized gain (loss) on redemption of Receipts		-		-		37,134,635			(434	)
Purchases		712,582		13,866		1,240,156			74,726
Redemptions		-		-		(240,359,988	)		(6,279	)
Closing balance	$	1,947,216	$	218,923,358	$	1,947,216		$	218,923,358

Fees and Expenses

2.6.

Fees and Expenses

The expenses of the Trust are borne by the Initial Depositor.

The expenses of the Trust are expected to include, but are not limited to, the following:

• any expenses or liabilities of the Trust;

• any taxes and other governmental charges that may fall on the Trust or its property; and

• fees and expenses of the Trustee and any indemnification of the Trustee.

Additionally, the Trustee’s and Mint’s fees are paid by the Initial Depositor and are not separate expenses of the Trust.

Related Party Transactions

2.7.

Related Party Transactions

On May 11, 2017, the Trust entered into the Depositary Trust Agreement with The Bank of New York Mellon, BNY Trust of Delaware, Bank of Montreal and BMO Capital Markets Corp. On July 11, 2018, the Trust entered into the Second Amended and Restated Distribution Agreement with Bank of Montreal and BMO Capital Markets Corp (the “Distribution Agreement”).

Bank of Montreal acts as the Initial Depositor of the Trust and holds gold that it transfers to the Trust from time to time in connection with the sale by the Trust of Receipts. Pursuant to the Depositary Trust Agreement and the Distribution Agreement, the offering price for each Receipt consists of the spot price at the time of sale to an investor for one troy ounce of gold, plus: (1) in the case of a Class A Gold Deposit Receipt, a deposit fee of 2.00%, payable to Bank of Montreal, plus a sales fee of 2.00% to any participating broker-dealer that sells Gold Deposit Receipts to an investor; (2) in the case of a Class F Gold Deposit Receipt, which is sold only through fee-based programs, a deposit fee of 2.00%, payable to Bank of Montreal, plus a sales fee of 0.25%; (3) in the case of a Class F-1 Gold Deposit Receipt, which is sold to trust or fiduciary accounts, a deposit fee of 2.00%, payable to Bank of Montreal, and no sales fee; (4) in the case of a Class F-2 Gold Deposit Receipt, which is sold solely to an Institutional Account, a deposit fee of 1.50%, payable to Bank of Montreal, and no sales fee; (5) in the case of a Class F-3 Gold Deposit Receipt, which is sold solely to an Institutional Account, a deposit fee of 1.00%, payable to Bank of Montreal, and no sales fee; and (6) in the case of a Class S Gold Deposit Receipt, which is sold solely to an Institutional Account, neither a deposit fee nor a sales fee. The deposit fee and the sales fee are not expenses of the Trust and have no impact on the financial highlights of the Trust. The Trust uses the proceeds of the issuance of Receipts, net of these fees, to purchase gold from Bank of Montreal in an amount that corresponds to the amount of Receipts.

Bank of Montreal charges holders of Receipts a withdrawal and delivery fee if physical delivery of the gold is requested (the “Withdrawal and Delivery Fee”). Bank of Montreal additionally reserves the right to charge the holders of Receipts a custody fee, not to exceed 0.50% per annum of the daily average closing price of gold represented by the Receipts, as calculated by the Initial Depositor, acting in good faith (the “Custody Fee”). Bank of Montreal did not charge any Custody Fee during the three or nine months ended July 31, 2020 or for the fiscal year ended October 31, 2019. None of the Deposit Fee, Withdrawal and Delivery Fee or Custody Fee is paid by the Trust to Bank of Montreal.

Pursuant to the terms of the Distribution Agreement, BMO Capital Markets Corp., one of Bank of Montreal’s affiliates, acts as the Underwriter of the continuous offerings of Receipts and as the calculation agent responsible for calculating the spot price at which Receipts are offered to the public.

Further, Bank of Montreal or its affiliates may acquire Receipts of the Trust on behalf of its private clients.

BMO Financial Group (“BMO”) held no Receipts as at July 31, 2020, after redeeming 153,118 Receipts in February 2020. BMO held 153,118 Receipts as at October 31, 2019 with a total market value of $231,353,642 (Cost: $203,243,629).

New Accounting Pronouncement

2.8.

New Accounting Pronouncement

In August 2018, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework --Changes to the Disclosure Requirements for Fair Value Measurement (“ASU 2018-13”). The update provides guidance that eliminates, adds and modifies certain disclosure requirements for fair value measurements. ASU 2018-13 is effective for annual periods beginning after December 15, 2019. Management is currently assessing the potential impact of these changes to future financial statements.

- Definition

Disclosure of accounting policy for income taxes, which may include its accounting policies for recognizing and measuring deferred tax assets and liabilities and related valuation allowances, recognizing investment tax credits, operating loss carryforwards, tax credit carryforwards, and other carryforwards, methodologies for determining its effective income tax rate and the characterization of interest and penalties in the financial statements.

+ References

Reference 1: http://www.xbrl.org/2003/role/disclosureRef
-Publisher FASB
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Reference 2: http://www.xbrl.org/2003/role/disclosureRef
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Reference 6: http://www.xbrl.org/2003/role/disclosureRef
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-Name Accounting Standards Codification
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+ Details

Vaulted Gold Bullion Trust 10-Q