Capital Gains Documentation

DaveC49 davidcousens at
Thu Oct 27 21:19:36 EDT 2016

Hi John,

I can't really answer your question on how many clients would use a
revauation model. I'm a retired physicist who did a Masters in Accounting
after taking an early retirement 12 years ago and started a business (not
accounting),  but I don't actually practise as an accountant. I was not very
happy with accounting advice i received while running my business and ended
up doing the Masters so I had a better understanding.  I am now fully
retired which gives me the opportunity to do a fair bit of research and
fortunately our governments (federal and state)  here have a policy of
having all legislation and regulations freely available online which makes
it easier to research albeit tedious at times. I also stay in touch through
my daughter who is a practising accountant for a large local company.

I personally would only choose to use a revaluation model in circumstances
where an asset was appreciating in value or likely to over the longer term,
e.g. for land or land and buildings and the costs associated with obtaining
regular valuations were considerably less than the gains in value. For a
business there has to be a financial advantage in choosing a revaluation
model over a standard depreciation and write off at the end of useful life. 

It is not clear from the standards alone here whether a business could
choose to change the model they choose over time as that is also heavily
affected by the taxation legislation and regulations which can proscribe
what models can be used, parameters for the model and in what circumstances,
at least for taxation purposes.

I wouldn't mind getting involved in helping with documentation. I found when
I first started using accounting packages (MYOB on the advice of my
accountant at the time) about 17 years ago, that gaining a good
understanding of accounting was a lot more complicated than simply
understanding how the program worked. Understanding why was often just as
important as how to do it. I transitioned to Gnucash around 8 years ago and
used it for both small business and personal finances.

I think it would be good to keep a general section on Capital Gains in the
tutorial and concepts guide as is fairly widely applicable in many
jurisdictions. What you need to do in business accounting is often
proscribed by legislation and regulation and most people using it for
business purposes do have access to  professional accountants in their
jurisdiction. For personal accounting it is still relevant as governments
try to increase their tax take and private assets are increasingly subject
to capital gains taxes. In Australia, for example, only a main residence is
usually exempt and investment properties are not. If you rent a property you
purchased as a main residence and lived in for a period you can rent it for
up to 6 years before becoming liable for CGT. If you have to move for a job
and rent a residence it eventually becomes liable for CGT. There are also
partial exemptions in some circumstances where you haven't had a property as
a main residence before renting it. Extremely complicated but it does mean
that a homeowner can be subjected to CGT in some circumstances.  CGT is also
applied to bots, paintings and other personal assets.  

My point I guess is that someone doing personal finances is also likely to
need to know how to deal with capital gains at least in some general sense
or at least recording information so they can assess whether they are
liable. The detailed accounting may vary in various jurisdictions but the
general concepts should be able to be illustrated. Not everyone dealing with
CGT on personal possessions would necessarily look for it under Share
Trading if they are not actively involved in stock and commodity

I think it is possible to modify the CG section to correct some of the
problems you identified and emphasize that any approach suggested is largely
jurisdiction independent general concepts and users should check their local
requirements carefully and modify the presented treatment accordingly.  I
don't think it is necessary to illustrate the mixed gains/depreciation cases
in a concepts guide but possibly just indicate that both appreciation and
depreciation may apply in some cases. Anyone that really has a mixed
appreciation/depreciation case should be seeking professional advice in any
case. I am using the term appreciation here in a general sense where both
increase and decreases in value are included and separate to depreciation
over a limited specific lifetime.


David Cousens

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