Capital Gains Documentation

[DaveC49]

This is an extract from AASB116 (Australian Accounting Standards) which are
based on the IFRS International Accounting Standards. Most other countries
with standards based on or aligned with the IFRS should have similar
provisions ( with the usual proviso about seeking professional advice in
your jurisdiction).

39. If an asset’s carrying amount is increased as a result of a
revaluation, the increase shall be recognised in other
comprehensive income and accumulated in equity under the
heading of revaluation surplus. However, the increase shall be
recognised in profit or loss to the extent that it reverses a
revaluation decrease of the same asset previously recognised in
profit or loss.

While this applies primarily to business accounting, it does give some clues
on how to treat increases or decreases in the valuation of a property for
personal accounting as well. In a business you are normally required to
obtain a valuation from a suitable qualified valuer periodically (3-5
years). For private purposes, you could simply get an evaluation from local
real estate agents.

1. Increases should be recorded under income and decreases under Expenses,
however in most jurisdictions it will not be taxable income. I.e. use an
income sub account for non taxable income and have a sub account of this for
House Revaluation. Accountants would normally put non taxable income under a
header Account of Other Income/Other Expense rather than under the Income
Expense headers.
2. A similar House Revaluation account under Other Expenses for Non
Deductible Expenses.
3. An Asset account for the House with a sub account for inital cost and a
sub account for the revaluation increases and decreases both of which sum
into the House parent account which reflects the current value of the house.
4. An Equity account Revaluation Surplus to which the relevant
Income:OtherIncome:House Revaluation and Expense:Other Expense:House
Revaluation accounts would be closed.

If you have no need to record the revaluations as income or expense (i.e.
you are not interested in evaluating profit/loss or surplus/deficit in the
business sense, you could simply record the transactions directly to equity.

Assets:House
Asset:House:InitalCost
Asset:House:Revaluation

Income:Other Income: HouseRevaluation
Expense:Other Expense:House Revaluation

Equity:House Revaluation Surplus

Recording an increased valuation of a house by $xxxx:

Asset:House:Revaluation                                 Db $xxxx
Income:Other Income:House Revaluation                            Cr $xxxx


Recording a decrease in valuation of the house by $xxxx

Asset House:Revaluation                                                    
Cr $xxxx
Expense:Other Expense:House Revaluation      Db   $xxxx

Closing to equity at end of period .i.e. financial year  where $xxxx is
balance in Income  account and $yyyy is balance in expense account:


Income:OtherIncome:House Revaluation        Db $xxxx
Equity:House Revaluation Surplus                                    Cr $xxxx
Expense:Other Expense: House Revaluation                      Cr $yyyy
Equity:House Revaluation Surplus                  Db $yyyy


If you don't need to record profit/loss or surplus/deficit:

Recording an increased valuation of a house by $xxxx:

Asset:House:Revaluation                               Db $xxxx
Equity:House Revaluation Surplus                                     Cr
$xxxx

Recording a decrease in valuation of the house by $xxxx

Asset House:Revaluation                                                    
Cr $xxxx
Equity:House Revaluation Surplus                 Db   $xxxx




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