Hi,
First question on this site so please take it easy on me!
I'm a property investor (purchase properties to rent out long term) and fairly new to using Sage 50 Accounts for managing assets (only really used it to manage sales/purchases in the past). I have setup a nominal code for each of the properties in the fixed asset section and also a nominal code for each of the properties in the long term liabilities section. I now want to record the outstanding mortgage amount as a long term liability and the value of the property as a fixed asset. I was planning on doing this using journal entries but obviously they have to balance out. Assuming the property is worth more than the mortgage, which nominal code do I post the balance to?
Thanks in advance, Michael.
*** PLEASE SEE MY BELOW COMMENTS FOR FURTHER CLARIFICATION ***
Replies (21)
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Wouldn't it be easier ...
... to use one nominal code and set each property as a department?
However, ARE you are a property developer, if so shouldn't the properties be in stock, not fixed assets? You should then record work done developing to give a Work in Progress figure for the balance sheet and move this to the P&L to match against the proceeds when the property has been developed and sold.
Or is it you are a property investor and the properties are held for renting out? If so, then using departments I would think makes more sense (the fact you are saying the mortgages are long term liabilities implies the properties are held for renting out). I would have two codes for the fixed asset in this case, one for cost and one for re-valuations, as the debt on which interest can be claimed as a tax deduction for cannot exceed the COST of the portfolio (not the value!).
Is the difference
between mortgage and value because the asset has been revalued or because the acquisition was partly financed by other means (e.g. cash, other loan, etc) and you are doing the initial postings (or both)? I assume this is a company?
Yes
If that's what you really want to do. I would, though, be mindful other posters' comments. My intention was only to answer your simple question and not query your reasons.
No apology necessary
As was said (by OGA, I think) you want to be wary of creating too many nominal accounts. You end up with a beast that is difficult to tame. Department codes are at your disposal so I would use them. This enables you to use the same nominal code for the same type of cost for all properties.@andy.partridge - Sorry if my reply came across in the wrong manner.
What I mean is ...
... treat each property as a department, your accounts will then show the combined totals for freehold property, mortgages, repairs, letting charges etc. but if you go to Company, Nominal Ledger, Reports, Departmental Reports you can get a list of any Nominal code broken down in to departments, or you can get a Balance Sheet or P&L by specific department if required - I just think it makes it easier if you just have one nominal code to post to for each type of payment or receipt.
You can have the reports as summaries, or detailed analysis and spread over what period you wish.
I would use 0010 for the initial cost, have 0011 as revaluation of freehold and say 3211 as freehold revaluation reserve and then each property within those by department, You could use 0012 as revaluation resever so they are grouped together given SAGE's reporting limitations, although if you high-light the N/L codes then run the detailed report it will just pick up the high-lighted accounts grouped by department.
Here's on I did earlier:
Date:12/11/2013PROPERTY ACCOUNTS Page:1 Time:11:56:38 Departmental Analysis (Totals) N/C From0010Tran Date From01/01/1980Tran No From1 Department From N/C To0010Tran Date To 31/03/2013Tran No To99999999 Department To999 Dept NumberDept Name Debit Credit Balance 1Property 1103000.00 103000.00 2Property 2223000.00 223000.00 3Property 3135000.00 135000.00 4Property 4102000.00 102000.00 5Property 5112500.00 112500.00 6Property 667000.00 67000.00 7Property 7135000.00 135000.00 8Property 8105000.00 105000.00 9Property 9140000.00 140000.00 12Property 10118000.00118000.000.00 13Property 1180000.0080000.000.00 14Property 1280750.00 80750.00 15Property 1383000.00 83000.00 16Property 1483000.00 83000.00 17Property 1591500.00 91500.00 19Property 16225000.00 225000.00 20Property 17200000.00 200000.00 2083750.00198000.001885750.00
And the detailed report mentioned
Date:12/11/2013 PROPERTY ACCOUNTS Page:1 Time:12:27:10 Nominal Departmental Analysis (Detailed) N/C From Tran Date From01/01/1980Tran No From1Department From1 N/C To99999999 Tran Date To 31/12/2019Tran No To99999999Department To999 Dept Number1Dept NameProperty 1 N/C 0010NameFreehold Property Tran NumberTypeDate Details Debit Credit Balance 1JD########OPENING BALANCE103000.00 103000.00 Account Totals103000.00 103000.00 N/C 2330NameLoans Outstanding Tran NumberTypeDate Details Debit Credit Balance 3JC########OPENING BALANCE 77250.00-77250.00 955BP########1TR cap rpd (est)272.00 272.00 980BP########1TR cap rpd (est)272.00 272.00 997BP########1TR cap rpd (est)272.00 272.00 1089BP########1TR cap rpd (est)272.00 272.00 6299JD########Adjustment to Mortgage Interest As at 31/03/20114431.60 4431.60 6329JC########Mortgage Interest For the Year Ending 31/03/2011 1404.70-1404.70 Account Totals5519.6078654.70-73135.10 Department Totals108519.6078654.7029864.90
It's nothing ...
... just a bit of cut and paste from a SAGE report exported to Excel that in true Blue Peter style I had prepared earlier :o)
Entries
To bring the property into the accounts
Dr 0010 £51,000
Cr 2330 £51,000
Do a bank payment crediting 2330 for the deposit
To do the revaluation
Dr 0012 £38,000
Cr 3211 £38,000
The law prohibits payment of dividend out of any reserve created as a result of upward revaluation of fixed assets.
Thanks Scalloway ...
... would just add, you need 3211 because if you increase the asset with a debit you need somewhere to credit, 3200 is general reserves, I suggest 3211 as it is easy to remember with 0011, you may prefer 3212 if you are using 0012 - personally I would use 0010 for freehold and 0011/3211 for revaluation and 0015 for leasehold with 0016/3216 for l/h revaluation as it keeps like with like. When you revalue upwards you are creating a notional profit, which is why you credit to reserves, as Scalloway says this is not distributable until the asset is sold and the gain crystalised.
(I think you mean bank payment debiting 2330 with the deposit though?)
Also the mortgage fees would be added to the cost of the property (as would any stamp duty and legal fees) in the first instance, such costs on re-mortgage would be allowable against letting income, although as stated earlier interest is only relievable on a loan of in this case of up to £51,000 - assuming the re-mortgage funds were applied to a deposit for a new property the remaining interest would be relievable there.
Depreciation
I would put the reduction in value through as depreciation. The rule is that you recognise impairment when it is known but gains can only go to profit when they are realised.