[GNC] accounting for the market value of a fixed asset

[David Cousens]

John,

Note: Any comments here are just illustrations of how such matters are
generally handled and do not constitute specific accounting advice.
Legislation applying in your jurisdiction may differ from mine and you
should consult an accountant in your jurisdiction for such advice and not
rely on the following.

Apart from the initial purchase of the truck which creates an asset (the
truck) and a liability (the loan used to purchase the truck, the accounting
for the loan and the truck generally become separated.  Most tax
jurisdictions allow you to carry an asset at a depreciated value (not
generally the market value of the asset -this is where you need local
accounting advice).

After the purchase the depreciation of the value of the truck is generally
handled by creating what accountants call a contra account.  To do this
Asset:Fixed:PickupTruck becomes what is known as a placeholder account and
you create two sub accounts of that account which sum into the placeholder
account
Asset:Fixed:PickupTruck
Asset:Fixed:PickupTruck:InitialValue
Asset:Fixed:PickupTruck:Deprectiation

Your initial transaction should look something like:

                                                                              
Debit                      Credit
Asset:Fixed:PickupTruck:InitialValue                     62,000
Liability:Loan                                                                                     
50,000
Asset:Bank:CheckAccount                                                                
12,000

I am assuming for example, that you supplied $12000 cash and the loan was
for $50000. Adjust the values as appropriate.

Usually the tax legislation that applies will set depreciation rules for
assets and you can usually write off the depreciation of your asset as an
expense against your business. Again depending on the tax legislation that
applies to you this might be done annually, quarterly or monthly. It will
involve a transaction of the form and an appropriate calculated amount in
place of the $5000 shown here:

                                                                            
Debit             Credit
Expense:Depreciation:PickupTruck                    5,000
Asset:Fixed:PickupTruck:Deprectiation                                    
5,000

and the *balances* of the above accounts will now be
                                                                               
Debit               Credit
Asset:Fixed:PickupTruck                                     57,000
Asset:Fixed:PickupTruck:InitialValue                   62,000
Asset:Fixed:PickupTruck:Deprectiation                                         
5,000

*Note*: an Asset account normally has what is known as a debit balance. The
depreciation account is known as a contra account because its balance is a
credit entry rather than a debit. If you then recorded a second depreciation
event for the same amoun as above, the balances would then be:

                                                                               
Debit               Credit
Asset:Fixed:PickupTruck                                     52,000
Asset:Fixed:PickupTruck:InitialValue                   62,000
Asset:Fixed:PickupTruck:Deprectiation                                       
10,000

When you eventually sell the vehicle at a market price, you will have to
record an adjustment between the value you sold the vehicle for and its
depreciated value which will be recorded as either income (market value >
depreciated value) or an expense (market value < depreciated value at the
time of the sale. If we assume its depreciated value at the time of sale is
for example $43,000, i.e. the balance of the depreciation account
Asset:Fixed:PickupTruck:Deprectiation = Cr 19,000   and you sell it for
$45,000. The transaction recorded will have the following entries:

                                                                          
Debit                    Credit

Asset:Bank:Cash                                              45000
Asset:Fixed:PickupTruck:Deprectiation                                       
43,000
Income:SaleOfPickupTruck                                                            
2,000

and the account balances will now be:
                                                                               
Debit               Credit
Asset:Fixed:PickupTruck                                              0
Asset:Fixed:PickupTruck:InitialValue                   62,000
Asset:Fixed:PickupTruck:Deprectiation                                       
62,000

Loans are covered in the Tutorial and Concpets Guide
(https://www.gnucash.org/docs/v3/C/gnucash-guide/index.html)

David Cousens



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David Cousens
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