Capital Gains Documentation

[Chris Good]

From: John Ralls [mailto:jralls at ceridwen.us] 
Sent: Thursday, 15 December 2016 5:10 PM
To: Chris Good <chris.good at ozemail.com.au>
Cc: gnucash-user at gnucash.org; sunfish62 at yahoo.com
Subject: Re: Capital Gains Documentation

 

 

On Dec 14, 2016, at 9:02 PM, Chris Good <chris.good at ozemail.com.au
<mailto:chris.good at ozemail.com.au> > wrote:

 

Message: 2
Date: Wed, 14 Dec 2016 21:02:18 +0500
From: "David T." <sunfish62 at yahoo.com <mailto:sunfish62 at yahoo.com> >
To: GNU Cash User <gnucash-user at gnucash.org
<mailto:gnucash-user at gnucash.org> >
Subject: Capital Gains Documentation, Redux
Message-ID: <1470DFA7-BE70-43B7-A11F-024F7C9B9398 at yahoo.com
<mailto:1470DFA7-BE70-43B7-A11F-024F7C9B9398 at yahoo.com> >
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Back in October, John Ralls raised the possibility of removing the Guide
Chapter on Capital Gains as unnecessary. That discussion petered out after

a



bit of discussion, but it seems as if the chapter lives on. I propose

having



it
removed now.

David T.


Hi David,

IMHO there is some good stuff in there that should be kept. John had a 
suggestion for recording unrealised capital gains on your house as a 
commodity. I'm not sure of the implications of that but just for personal 
finances, I'm wondering what exactly the disadvantages would be of recording

the unrealised gains in an Income:Unrealised Gains account as suggested by
the 
guide?

Wouldn't using a house commodity make it difficult to come up with a net
worth that included your house? Even if this is only an estimate, it is
useful to have.

How would a business do it? If using Income:Unrealised Gains is not how it 
should be done in formal accounting, then we should change the documentation

to be correct. It would be good if some accountants could give us the
benefit of their experience.

 

Chris,

 

Not exactly. What I proposed was creating a commodity for your house and
entering prices for that commodity in the price editor. Since GnuCash's net
worth tools, including reports, the Accounts page, and the summary bar, use
prices to calculate current value you'll get the price-based net worth
you're looking for without the pain of mark-to-market accounting [1], which
isn't somewhere you want to go unless you must. 

 

How would a business do it? Depends on the business and whether they either
have a regulatory requirement (as do some banks and financial companies) or
see some other advantage (as did, notoriously, Enron and Arthur Anderson) to
use mark-to-market. Failing that, meaning most ordinary companies and all
"natural persons" (actual people), assets are accounted for at (depreciated
if appropriate) cost until disposal. Depreciation is generally a deductible
expense only for businesses. Gains are booked as income (sometimes a special
kind of income depending on the nature of the asset and the jurisdiction)
only when the asset is disposed of.

 

What's the problem with booking unrealized gains as income if you're not
supposed to? It makes it harder to book the realized gains when you come to
sell the asset because the tax man isn't interested in your unrealized gain
income on which you didn't pay taxes: He wants to know what you originally
paid, how much you depreciated the asset if you could and did, and how much
you got paid when you disposed of it. If you've booked adjustments to the
asset's value in the interim you'll have to undo all of those transactions
to calculate the actual realized gain to pay your taxes. You'll also have an
income account that you must remember to ignore when doing your taxes every
year.

 

 

Regards,

John Ralls

 

[1] https://en.wikipedia.org/wiki/Mark-to-market_accounting

 

Hi John,

 

Thanks. Great info which I think should go into the guide. I'll add it to my
list unless you want to do it David?

 

Regards,

Chris Good

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