An increase in the price or value of assets can be captured by booking a journal entry based on how your advisor would like to account for the increase in value. Capital appreciation can be passive and therefore is different to a capital gain which is the profit achieved by selling an asset. Capital appreciation may or may not be booked in your financials. It depends on your situation, tax zone and advice received. Generally if booking a revaluation of the asset it is then “recognised” but not “realised”. Once the asset is sold, the appreciation since the date of initially buying the asset becomes a “realised” gain.
You can use a General Journal transaction to capture the appreciate or capital gain of an asset. There are different ways of doing this so do not rely on this example without seeking advice from your advisor specific to your business. Many property investors also get Quantity Surveyor reports for this area.
- Set up an Asset account for the appreciation of the Asset. For example, an Asset: Collectables would have an appreciation account called Asset: Collectables Accum Apprec. To ensure your account names aren’t too long, we have abbreviated Accumulated Appreciation to Accum Apprec.
- Set up an Income account for booking appreciation income. e.g. Income: Appreciation
- Add the following General Journal transaction:
Account Tax Code Debit Credit Asset: Collectables Accum Apprec –No Tax Code– 100.00 Income: Appreciation –No Tax Code– 100.00
NOTE: The amounts entered don’t include any tax.
This transaction has offset your Asset: Air Con category by the depreciated amount. It also has the effect of booking the expense to your Profit and Loss.
Asset:Collectables + Asset:Collectables Accum Apprec = Total Collectables Asset Value
Appreciation journals are normally done at the end of your reporting period. For some businesses this is monthly, for others yearly.
TIP: If you have lots of assets you can put them all in a single journal. Then, next year you simply use the Duplicate button on the journal to make a copy, edit each line, and save it for the new year. You might also add in new assets at this time. Sometimes you can run a journal for each appreciation method or group of common assets to break this up a little. This is useful if you have lots of assets to manage.