In Sage 50 Accounts, which nominal code do I use to record a rise in the value of a fixed asset?

In Sage 50 Accounts, which nominal code do I...

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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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By andy.partridge
11th Nov 2013 21:12

Create one
Create a Revaluation Reserve in the Capital section, ie. 3xxx

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Replying to ireallyshouldknowthisbut:
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By F1MLB
12th Nov 2013 10:00

@andy.partridge - I wanted the balance sheet to itemise the equity in each property individually so do you recommend I create a 'Revaluation Reserve' for each property and post the balance to that?

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By User deleted
11th Nov 2013 23:40

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!).

 

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Replying to Duggimon:
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By F1MLB
12th Nov 2013 10:09

@Old Greying Accountant - I have already setup each property as a department but the balance sheet doesn't show departments? Can you explain what you mean by using departments? The reason I setup departments was so that I can track what I've spent on each property in a year, etc using reports.

I should have clarified that in the main I'm a property investor more than a developer and the properties are purchased and held for renting out.

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By paulwakefield1
12th Nov 2013 08:40

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?

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Replying to SJH-ADVDIPMA:
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By F1MLB
12th Nov 2013 10:11

@paulwakefield1 - Yes, the difference between the mortgage and value is because the asset has been revalued and I'm doing the initial postings. The acquisition was never financed by other means. Yes, this is a company.

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By andy.partridge
12th Nov 2013 10:13

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.

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By F1MLB
12th Nov 2013 10:25

@andy.partridge - Sorry if my reply came across in the wrong manner, it wasn't meant to sound blunt or anything like that. I'm genuinely stuck on this and was asking if it would be ok to make a nominal called 'Revaluation Reserve' for each property? Apologies again and thanks for your help so far.

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Replying to C.Y.Nical:
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By andy.partridge
12th Nov 2013 11:33

No apology necessary

F1MLB wrote:

@andy.partridge - Sorry if my reply came across in the wrong manner.

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.  
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By User deleted
12th Nov 2013 13:02

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:Time:11:56:38              Departmental Analysis (Totals)      N/C From0010Tran Date From01/01/1980Tran No FromDepartment 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:Time:12:27:10                Nominal Departmental Analysis (Detailed)     N/C From  Tran Date From01/01/1980Tran No From1Department FromN/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

 

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By Canary Boy
12th Nov 2013 13:39

Wow

OGA that is a great illustration!

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By User deleted
12th Nov 2013 16:17

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)

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By F1MLB
12th Nov 2013 19:20

@OGA - Your replies have been extremely useful, thank you for taking the time to go into such detail! I'm 99% there now but have a few more queries that I need clearing up.

I have setup each property as a department. I have 0010 as Freehold Property which I will use to record the original purchase price as you've suggested. 0011 is Leasehold Property which I may well need to use in the future. Am I ok to use 0012 for Revaluation of Freehold Property instead of overwriting 0011? I also don't understand why you've suggested to create 3211 as Freehold Revaluation Reserve. What will this nominal be used for? Will the mortgages (long term liabilities) be assigned to 2330 which is Mortgages?

Just to clarify, I usually buy the properties with 25% cash deposit and 75% mortgage.

Cheers, Michael.

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By F1MLB
12th Nov 2013 19:25

It would be really useful if you could explain what nominal I'd post each of the below figures to;

Purchase price - £51,000
Cash Deposit - £12,70
Mortgage Advance - £38,250 + fees of £495
New Valuation - £89,000

Thanks, Michael.

 

 

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By andy.partridge
12th Nov 2013 22:11

@OGA
Serves you right for being too helpful.

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Scalloway Castle
By scalloway
12th Nov 2013 22:15

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.

 

 

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By User deleted
12th Nov 2013 23:31

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.

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By F1MLB
13th Nov 2013 12:22

Hi,

I would like to thank everyone (especially OGA) for their help with all my queries. I now appear to have everything sorted and it all makes sense.

All the best, Michael.

 

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By F1MLB
13th Nov 2013 13:46

Me again!

I have one property which is borderline negative equity and therefore is worth slightly less than the outstanding mortgage. How would I go about accounting for that?

Thanks, Michael.

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Scalloway Castle
By scalloway
13th Nov 2013 16:01

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.

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By F1MLB
14th Nov 2013 09:31

Thanks again.

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