[GNC] Accounting Question re Balance Sheet

[paul at kroitor.ca]

Thanks for this -- and the other replies -- it's just what I was looking
for.

I neglected to make clear that my question was entirely about the CoA
structure; I am very clear about the tax reporting requirements and
consequences.

I like the idea of an intermediate-level account for each property, with
subordinate accounts for the initial purchase and (separately) the annual
valuation adjustments.

It spawns a second question: what if I add the expected tax hit and sales
costs as sub-accounts under this same mid-level Asset account:
- Property 1
    - Purchase
    - Value Adjustment
    - Anticipated taxes on sale
    - Anticipated sales costs
- Property 2
    - Purchase
Etc.

Obviously the latter two in each property would be negative. Should they be
asset accounts that contain negative entries? Or marked as Liability
accounts in GnuCash even though the parent account is an asset?

The good thing about this is that the parent account value reflects the
actual net value of the property if it were sold.

Paul

-----Original Message-----
From: gnucash-user <gnucash-user-bounces+paul=kroitor.ca at gnucash.org> On
Behalf Of davidcousens49 at gmail.com
Sent: January 20, 2022 4:10 PM
To: gnucash-user at gnucash.org
Subject: Re: [GNC] Accounting Question re Balance Sheet

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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