how to register renovations to fixed assets

[John Ralls]

> On Oct 31, 2016, at 5:19 AM, Bram Mertens <mertensb.mazda at gmail.com> wrote:
> 
> Hi,
> 
> I'm fairly new to gnucash and I'm looking for some advice on how to
> register renovations to a fixed asset.
> 
> I'll be renovating an apartment, the purchase price of the property itself
> has been registered as an asset while the cost of the purchase (notary
> etc.) have been registered as expenses.
> 
> How should I register things like a new kitchen or new windows?
> The purchase of these investments consists of a part expenses (delivery,
> installation) and a part that will contribute value to the fixed asset.
> So while I might simply split the transaction like that it feels wrong
> because the actual value of the asset will not increase with the total
> value of the kitchen/windows will it?
> If I want to sell the property later these renovations will have increased
> the value but not for the same value I need to pay for them.
> 
> How can I deal with this?
> I've found some different views in the archive but those situations were
> slightly different so I'm hoping for some general advice.

That's an accounting question, and the answer depends on the laws and financial regs of your country and maybe on whether the apartment is to be your personal residence or is a business. There is no "general" advice, and you need specific advice for your situation. Consult with a local accountant.

In the United States you'd be allowed/required to capitalize everything. (Allowed if it's a personal residence because you don't get to deduct expenses and it increases the basis and reduces your eventual capital gains tax when you sell, required if it's a business property because you wouldn't be able to deduct the expenses in the current year, booking a depreciation expense instead.)

There's a difference between market value and book value, and between routine maintenance and improvements. Replacing windows and kitchen cabinets isn't something that's done routinely so they're improvements and must be capitalized. Even if they don't increase the market value of the apartment they still increase your investment in it, so they're debited to the asset. If this is a business you may need to put them in a subaccount because they may have a different depreciation schedule than the apartment itself. Only a local accountant will have sufficient knowledge of your country's tax laws to tell you what gets expensed and what gets capitalized.

Regards,
John Ralls