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I've been using GnuCash to track only my money and securities. Now, I wanna use it to track also my fixed assets so that I have a more accurate estimation of my net worth.

One fixed asset I have is a motorcycle, a Honda CG 150 Titan. It was bought in 2006 for 4,100 BRL at market price, but today it's worth 6,500 BRL. Although the motorcycle has depreciated, BRL was also inflated meanwhile, which resulted in this increase in price.

I consulted my government's website to see what was the inflation adjustement from 2006 to 2022, and it shows an inflation by a ratio of 2.54401930 in the period. That means the motorcycle would be bought nowadays for around 10,430 BRL (4,100 * 2.54401930). Now the depreciation is visible, because the motorcycle went from what would be 10,430 BRL in 2006 to 6,500 BRL in 2022.

My question is how to account that in GnuCash. The GnuCash Guide for depreciation suggests creating two Asset sub-accounts, one for cost and another for depreciation, which in my specific use case is:

- Assets
  - Fixed Assets
    - Honda CG 150 Titan
      - Cost              4,100 BRL
      - Depreciation      ? BRL

But if I create depreciation transactions from 2006 to 2022 in the account "Depreciation", I will end up with an asset that's worth nothing, which is against the purpose of estimating the value of my fixed assets.

One idea I had was creating a custom security for the motorcycle model as you do with stocks. This way, you would treat the motorcycle like you treat companies in a stock exchange, but I don't know if this is good accounting pratice. How should I account this?

Giovanni L
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2 Answers2

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Depreciation is an accounting concept which is used to write off expenses over time. For example, you bought the motorcycle for 4100 BRL, and you depreciate it over a period of 5 years - you write off 820 BRL due to depreciation from your asset value. After the depreciation period ends you end up with "worthless" asset on your books, even though in reality it may not at all be worthless. That's how accounting works.

In your case you're not writing anything off, so the concept of depreciation is meaningless to you.

Similarly the concept of inflation, it means nothing to you on your personal individual level.

What you have is a gain. You bought an asset at 4100 BRL and you're selling it at 6500 BRL. The difference (2400 BRL) goes into capital gains account. You'll need to check with your country's taxing authority as to how this gain is taxed and whether some official measure of inflation is taken into account to reduce the tax liability or not.

littleadv
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One common method of tracking depreciation is to have your asset in one account and the depreciation in a second account.

You might have bought something for 5000 BRL and the asset has a useful life of 5 years. So after 1 year, using 'straight line depreciation', it can be considered to have lost 1/5 of its value. You would put -1000 BRL in the depreciation account for the asset. The net value of the asset is the sum of the sum of the two accounts: 5000 + (-1000) = 4000 BRL.

If you determine that the 'full' value of the asset is now 6500 BRL due to inflation, you can add 1500 BRL to the asset.

Start: 5000 Asset XYZ 0 Accumulated Depreciation XYZ

After 1 year: 5000 Asset XYZ -1000 Accumulated Depreciation XYZ

After revaluation: 6500 Asset XYZ -1000 Accumulated Depreciation XYZ

Then if you want to see the 'new' value of the asset, you can run a report to show "Asset XYZ" = 6500 BRL. If you want to see the 'current' value of the asset, you can run a report that shows the sum of the two accounts = 5500 BRL.

Disclaimer: I am not an accountant, and this is not financial advice.

Lawrence
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