Capital Gains Documentation

[John Ralls]

> On Oct 26, 2016, at 3:49 PM, DaveC49 <davidcousens at bigpond.com> wrote:
> 
> 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
> 

Dave,

Thanks, that's very interesting. Is that 3-5 year revaluation requirement mandatory for all businesses or just businesses of certain size or in some industries? What asset classes does it apply to? How does it interact with depreciation?

Anyone know the equivalent GAAP standards, if there are any?

Regards,
John Ralls