Appreciation of an Asset

1

Hello. This may sound wierd but how can one appreciate the value of an asset?

We mostly deal with transportation vehicles, and every year they depreciate in cost since it is a law here to take them annually to a valuation company to get a value for insurance purposes. but at times we have one or two taken back to a garage/company and they are restored or built afresh, which is a very expensive undertaking and what it does is that it makes the vehicle appreciates in value…

For example,
2017 - buy used car at $10,000
2018 - value depreciates by $2000
2019 - value depreciates by $2000
2020 - value depreciates by $2000
2020 - book value of car $4000
2020 - car restoration cost of $5000
(at this point can we say the vehicle is worth $9000?)

While we record the depreciation and it shows in our balance sheet, how do we record appreciation? Can we even call it appreciation? I have tried deleting an entry in the depreciation but i want to see all the entries and history. We also tried creating an account for depreciation but we don’t want it to show up in our P&L, rather an add on to an asset but not a separate asset altogether.

Don’t know if i am making sense. :smirk:

Is this possible?

2

Add the appreciation to the asset by using a the payment transaction and selecting the fixed asset account and then the car in question

If you use a purchase invoice instead of a payment, then select fixed asset and the car in question in the purchase invoice

3

The valuation of an asset for insurance purpose is completely separate to the value to the business

It is up to the business to decide what is the value and depreciation to be used, taking into account any local laws of course

4

Yeah… Just want for our own purposes to know where our money is being spent.

5

That goal will be satisfied one way or the other by recording the expense of rebuilding. The only question is where the expense is debited. Local law and accounting standards will determine this.

If they allow the rebuilding expense to be capitalized, @Joe91’s technique will add to the book value of the fixed asset. In other words, you will have posted the debit leg of the transaction to the Fixed assets account. From there, it would add to the depreciation basis for future depreciation entries. And you would recover the expense over time.

If local law/standards do not allow rebuilding cost to be capitalized, you would instead select a suitable expense account for the payment transaction. Your rebuilding cost would be recognized in the current accounting period.

Do not, however, think of recording this transaction only “for our own purposes to know where our money is being spent.” The expense is a legitimate cost of doing business that will lower net profit. The issue is whether you claim that expense over time through depreciation or all at once.

6

In some jurisdictions you can do both - so you might use accelerated depreciation for tax calculation purposes but spread the cost of the asset over it’s useful life when accounting in order to have a more realistic view of your profits/losses and balance sheet position

7

Good point, @Joe91, emphasizing once again the differences between financial and tax accounting.