Hi
I’ve read and understand post: FIXED ASSETS and Advance payment regarding revaluation, achieved as ‘one off’ journal entries, but, as a desktop user for home accounting, I’d like to know why an asset appreciation isn’t simply treated as a negative depreciation. If, for example, I wanted to appreciate an asset by 2%/year, why can’t I use the depreciation spreadsheet report using negative depreciation values as a ‘what if’ report? I note it ignores these and only uses positive values. Could this method be useful for estimating the growth of an asset over time??
I apologise, in advance, if my question sounds absurd to the accounting experts who
are willing to answer my question.
“Appreciation” entries don’t sound bad to me considering the fact that some assets may appreciate in value (e.g held for sale fixed assets, investment properties held at fair value) but you cannot increase asset value by your own estimations, you have to use the market price to do that. A professional asset valuer should be hired for this or you may check for the price/fair value of the asset in an active market for assets of that kind.
In addition to what @Abeiku contributed, I’d like to answer this question in particular:
Because depending on your GAAP/reporting standards, this may or may not be permissible.
Since it’s the most widely applied set of reporting standards, let’s consider the IFRS. The IFRS permits appreciation of fixed assets, however, the accounting treatment differs substantially. While depreciation is recognized in profit and loss, fixed asset appreciation is recognized directly in equity. The reasons for such treatments are:
Appreciation of fixed assets isn’t a direct result of any of the main business activities: operating, financing and investing but instead, it’s a side effect that has impact on the financial position of a business but not it’s results of operation.
Fixed assets are operating in nature and such gains are unlikely to be realized since the asset is more likey than not going to be used instead of sold for gains.
To limit the potential of earnings manipulation especially since valuation of assets in use involves a great deal subjective estimation which is not exactly what you might call “scientific” figures.
Anyway, despite the fact that I personally don’t like being restricted to using the Depreciation Entries tab and instead prefer to be able to write a single journal entry to process depreciation in bulk – which the developer disagrees for some reason, I don’t see why not have separate tabs for asset appreciation as long as this doesn’t break what we have already entered in the past.