It seems there’s no means of selecting an income/expense tracking code to the transaction when disposing of a fixed asset. Is this an oversight on Manager’s part, or should I first depreciate away the remaining value before disposing?
I suspect you are not referring to tracking codes, since they cannot be applied at any stage of fixed asset acquisition or disposal in Manager. Segregation of fixed assets by division would need to be accomplished through custom control accounts. Your use of the words “income/expense” leads me to believe you are instead referring to income and expense accounts.
At any rate, do not depreciate away remaining book value if the asset is disposed of. That will get you in trouble with auditors and tax authorities. Instead, dispose as per the Guide:
Let me clarify my issue. Tracking codes are applied to incomes and expenses. Depreciation and loss on disposal are expenses. When one depreciates an asset, the entry form provides a place to select a tracking code to tag to the expense. When one disposes of the asset, there’s no such option available. The entries in the “Fixed asset - loss on disposal” category end up with no tracking code. Then my tracking code audit reports these uncoded entries.
OK. Now I understand your issue. You are correct in saying you cannot assign a loss on disposal to a tracking code. The reason is that the amount of loss is determined by the book value of the fixed asset at time of disposal, and the fixed assets register is only organized by asset (at least at the present time). The Fixed assets - loss on disposal account is a built-in control account and, thus, not subject to modification.
From a purely transactional point of view, you can use a journal entry to move the loss amount from Fixed assets - loss on disposal to some other account you create to go with the tracking code. But that leaves you with the problem that you originally acquired the fixed asset at the top business level, without assigning it to any tracking code. So you would be misstating the performance of the division for which the tracking code was intended. If you really want to monitor fixed assets by division (which is what tracking codes were meant for), I think you’re back to custom control accounts.
The specific case here is for a residential rental business. For tax purposes, closing costs and loan points can be depreciated linearly over the duration of the mortgage. If the mortgage is paid off early, the costs and points can be disposed of as a loss. So it’s not really an “asset” in the conventional sense I’m dealing with, but accounting-wise it ought to be no different. For my purposes it’s close enough. It’s an asset inasmuch as its value is that it generates tax savings over time.
So it makes sense that the initial appearance of the asset wasn’t tagged with a tracking code. It was just an asset conversion from cash into another form. It wasn’t received as an income. But the depreciation and loss are definitely expenses, and the IRS requires that these expenses be broken out on a per-property basis. I assign each property a unique tracking code to tag these and other related incomes and expenses.
Perhaps there’s a different way I should track this that would be better suited to the Manager way of doing things?
Well, now that you’ve revealed that this is a US situation, you are right in treating this as a fixed asset, as that is indeed what the IRS requires.
In this specific situation, I think you might actually be able to depreciate the remaining book value since it ends up reducing gain. But I’m no CPA, and as you know, real estate taxation is complex. I think it will come down to whether the accelerated write-off of points and closing costs is allowable as a deduction or only reduces capital gain on the property. If your accountant says it goes as a current deduction, then just enter a depreciation amount into Manager to zero out book value, and it will appear in the annual depreciation expense account. If it goes to reduce gain, then use a journal entry to transfer it from Fixed assets - loss on disposal to wherever it needs to go, which may depend on what you’re doing with the proceeds of the sale. Whatever the accountant says you should do, Manager can handle it.
It’s a refinance in this case, so definitely an expense since there isn’t a capital gain against which it could be an offset. I’ll go ahead and write it off as depreciation and then dispose of the $0-value asset. It accounts for the loss as depreciation instead of disposal on the P&L, but for my purposes I don’t think that matters.
Thank you!