Shared asset with brother, mortgage involved, not mine, how to account for that?

[Buddha Buck]

This is why I suggested talking to an accountant in his jurisdiction,
because how he described his situation doesn't match how I assume it would
work (knowing what I, as an inquisitive non-accountant, know about how
things work where I am), or what you (Aaron) are describing.

Here's how I'd answer his questions:

How much of the office does Daniel own? 5%, or 50%, depending on the nature
of his agreement with his brother, the agreement I know none of the details
of.
How much of the office does his brother own? 50%, or 95%, depending on the
nature of his agreement.
How much of the office does his bank own? None, unless Daniel and his
brother default on the loan.

How would this be accounted for? Depends a lot on the details.

1) One method would be to completely separate the joint business from your
personal finances, and keep a set of books just for that venture. You can
transfer pertinent summary data over when you need to.

Have this set of relevant accounts:

Asset:Bank Account
Asset:Office Property
Expense:Mortgage Interest
Income:Rental
Liability:Mortgage
Equity:Daniel
Equity:Brother

Let's say the property sold for $100,000 with a $90,000 mortgage at 6% for
15 years, and $5,000 from each of you. Then the monthly mortgage amount is
$843.86. Let's say you rent it out for $1000/month.

So to start the process, you would enter the following transaction:

2015-01-01 Buy the property
  Debit Asset:Office Property $100,000
    Credit Liability:Mortgage $90,000
    Credit Equity:Daniel $5,000
    Credit Equity:Brother $5,000

That says that the two of you own the $100,000 office, but collectively owe
the bank $90,000, with $5000 each remaining.

For the rent, you'd enter

2015-01-01 January office rent
  Debit Asset:Bank Account $1000
    Credit Income:Rental $1000

For the mortgage payments, you'd enter

2015-02-01 Mortgage Payment
  Debit Expense:Mortgage Interest $500
  Debit Liability:Mortgage $343.86
    Credit Asset:Bank Account $843.86

After a year, you'd have an income statement that looked like

Income Statement for 2014-01-01 to 2014-12-31
  Income:Rental $12,000
  Total Income: $12,000

  Expense:Mortgage Interest: $5884.61
  Total Expense: $5884.61
  Retained Earning: $6115.39

and a balance sheet that looked like

Balances as of 2015-12-31
  Asset:Bank Account: $1873.72
  Asset:Office Property: $100,000
  Total Assets: $101873.72

  Liability:Mortgage : $95,758.33
  Total Liabilities: $95,758.33

  Retained Earnings: $6115.39
  Equity:Daniel: $5000
  Equity:Brother: $5000
  Total Equity: $16115.39
  Total Liabilities and Equity: $101873.72

But really, only someone familiar with your situation, and the local
accounting practices and laws surrounding it, can give you the correct
answer of how you should do it.


On Fri, Oct 3, 2014 at 9:51 AM, Aaron Laws <dartme18 at gmail.com> wrote:

> (Not an accountant)
>
> I hate to speak out before a more experienced hand, but then again, I
> certainly won't speak *after* another! Perhaps I can stumble forward to
> provide a starting place for one of the greater.
>
> When rent comes in, if the rent cheque is written to your brother, then he
> writes you a cheque:
>
> assets:chequing    R/2
> revenue:rent                     R/2
>
> Where R is the full rent amount. When the mortgage payment is due, assuming
> you both write a cheque to the mortgage holder:
>
> assets:myoffice     (P/2-I/2)+E
> expense:interest     I/2
> assets:chequing                        P/2+E
>
> Where P is the full mortgage payment, I is the interest acrued, and E is
> any extra payment you make. When work is done or bills come in for the
> building:
>
> expense:repairs     B/2
> assets:chequing              B/2
>
> Where B is the amount of the bill.  Does that make sense? With this scheme,
> the timing of rent payments and mortgage payments is disconnected: you can
> pay mortgage quarterly and earn rent weekly, for instance. I'm assuming you
> split the rent income and mortgage payment down the middle. I'm also
> assuming that your brother would be okay with you paying extra and owning
> more of the building with extra payments!
>
>
>
>
>
>
> In Christ,
> Aaron Laws
>
> On Fri, Oct 3, 2014 at 9:38 AM, Daniel Farfán Muñoz <
> dfarfanmunoz at gmail.com>
> wrote:
>
> > Thanks. We are doing business as ourselves, no company involved.
> >
> >
> > 2014-10-03 10:34 GMT-03:00 Aaron Laws <dartme18 at gmail.com>:
> >
> >> (Not an accountant.)
> >>
> >> Is there a business or company involved, or are you two doing business
> as
> >> yourselves?
> >>
> >>
> >> In Christ,
> >> Aaron Laws
> >>
> >> On Fri, Oct 3, 2014 at 6:24 AM, Daniel Farfán Muñoz <
> >> dfarfanmunoz at gmail.com> wrote:
> >>
> >>> Hi everyone, I hope someone can help me with this:
> >>>
> >>> My brother and I bought an office together. I did a downpayment of 5%
> of
> >>> the value of the office. My brother paid the other 5%. He got a
> mortgage
> >>> of
> >>> 90%. We rent the office to someone else, I receive the monthly rent,
> and
> >>> then I transfer the money (minus some operational charges) to his
> account
> >>> so he can pay the mortgage.
> >>>
> >>> So, I own the 5% of the value of the office, plus some money I earn
> from
> >>> the rent. But how do I account for that in gnucash? How do I know how
> >>> much
> >>> of the office I own? Or how much I'm earning by renting it?
> >>>
> >>> Thanks in advance.
> >>> _______________________________________________
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> >>
> >>
> >
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