Capital Gains Documentation

[David T.]

Chris, 
I interpreted John's remarks (the current ones, but also those in October) as indicating that these tactics would not be broadly applicable, and thus not appropriate in the docs. 
While interesting as a concept, I think we need to balance that with the need not to overwhelm the many with the needs of the few.
David

 
 
  On Thu, Dec 15, 2016 at 13:02, Chris Good<chris.good at ozemail.com.au> wrote:   
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> wrote:

  


Message: 2
Date: Wed, 14 Dec 2016 21:02:18 +0500
From: "David T." <sunfish62 at yahoo.com>
To: GNU Cash User <gnucash-user at gnucash.org>
Subject: Capital Gains Documentation, Redux
Message-ID: <1470DFA7-BE70-43B7-A11F-024F7C9B9398 at yahoo.com>
Content-Type: text/plain; charset=us-ascii

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