[GNC] Accounting Question re Balance Sheet

[davidcousens49 at gmail.com]

Paul 

As long as you post the initial estimates of the Sales fees etc that you make to
Expense or Income accounts as appropriate as well as any interim or point of
sale adjustments, then the approach you are using should be OK. You will need to
preserve whatever your tax authority defines as the cost basis for capital gains
purposes.
  
The way to to this is for each asset maintain two (or more if necessary) sub-
accounts summing into the placeholder, one recording the initial purchase price
and the second a contra account in which to record the on going chenges to the
asset value and associated costs as determined from market values.  You could do
the same for the associated Laibilities, although this may be less necessary as
the liability is not incurred until the point of sale and your initial estimate
of this would not normally affect the cost basis of the asset under most capital
gains assessments in most jurisdictions.

As you have noted the recording of expense and income is not in accordance with the timing rules in normal accounting and taxation practice so the data as recorded will not be useful for taxation purposes. You could deal with this without having to maintain a separate set of accounts by establishing separate subaccounts for Taxable and Non-taxable income and expenses with appropriate sub-accounts as required under these headings as long as you are careful with categorizing the income and expenses and the inclusion of the asset and liability sub accounts in reports. You can prepare any required reports by including or excluding the accounts as appropriate and saving them. 
Exact details will of course be dependent upon taxation rules and any accounting
rules that are specific to your jurisdiction and you should take accounting
advice from a registered professional in your jurisdiction if you are in any
doubt and not consider the above as actual accounting advice.


David Cousens







On Thu, 2022-01-20 at 14:55 -0500, paul at kroitor.ca wrote:
> This isn't really a GnuCash question, but I thought I might ask you guys
> anyway as there's a broad variety of skills and experience here.
> 
>  
> 
> Situation: a relative owns a house on a six acre property, plus several
> adjacent properties she's collected over the years. Under Canadian tax
> rules, the house and some of the lot it's on are tax exempt. The other
> properties are taxable for capital gains. They will be sold over the next
> years, one at a time to keep marginal rates down. There will also be
> significant sales expenses (commissions, surveyors, .) associated with each
> sale.
> 
>  
> 
> My question is about how to structure this tax and sales costs liabilities
> in the Chart of Accounts, and thus the balance sheet. 
> 
>  
> 
> It seems to me sensible to have the properties in Assets*, and the expected
> Sales Fees / Taxes in Liabilities*. Then when a property is sold, both
> assets and liabilities are reduced by the expected values, and the
> differences between the expected and actual values are booked as Income or
> Expense (Net gain / loss on land sales?).
> 
>  
> 
> This approach makes the Balance Sheet reasonable every year, but the Income
> Statement only shows the adjustment, not the total funds in and out due to
> the sale.
> 
>  
> 
> I've tried some alternatives too, but not having the properties as assets
> makes the Assets side of the balance sheet look silly, whereas not having
> the expected taxes / sales costs in Liabilities means that a sale triggers a
> huge, unexpected expense in the Income Statement without any corresponding
> income to cover it.
> 
>  
> 
> Am I missing some cleverer way to do this? Is there a GAAP approach for
> this? 
> 
>  
> 
> Thanks for any suggestions,
> 
> Paul
> 
>  
> 
> *I know "real" books keep only the book values of these assets and tax
> liabilities, but as this is a person rather than a company, and the reports
> need to make sense to a non-business person, we use current market values in
> these accounts, and annually update the expectations.
> 
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