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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?

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  • You say that you want to account for depreciation, but you also say that if this results in "an asset that's worth nothing", it goes "against the purpose of estimating the value ...". If you don't want the recorded depreciation to affect the resulting value of your asset, please explain what you are trying to achieve by capturing depreciation in your accounts.
    – Lawrence
    Commented Sep 25, 2022 at 16:39
  • By "estimating the value" I meant to account for the current market price of the motorcycle. I bought it for 4100 BRL, nowadays it costs 6500 BRL. By depreciating 4100 BRL to 0, I would have a "worthless" asset, when I actually wanna look at my account book and see, "I have an asset that's worth 6500 BRL."
    – Giovanni L
    Commented Sep 25, 2022 at 16:44
  • Also, I think the term "depreciation" didn't clearly convey my intended use. There's "depreciation" as in accounting (decreasing an asset's value to 0), but in my culture, you can also say a vehicle has depreciated in the sense of losing its market value, which is not to say it's worth 0
    – Giovanni L
    Commented Sep 25, 2022 at 16:46
  • @littleadv explained in an answer that depreciation (in accounting) isn't useful for personal use
    – Giovanni L
    Commented Sep 25, 2022 at 16:48
  • Ok, I think I understand what you're after. Please see my answer below.
    – Lawrence
    Commented Sep 26, 2022 at 17:48

2 Answers 2

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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.

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  • So, if I'm getting right, the only use of depreciation is to reduce the taxes payable by showing the government you have a "worthless" asset? It shouldn't be used in personal accounting?
    – Giovanni L
    Commented Sep 25, 2022 at 15:57
  • @GiovanniL no, not taxes. Balance sheet. For taxes you deduct the depreciation as an expense, but when you sell the asset you recognize the difference as gain. E.g.: your motorcycle is fully depreciated and you reduced your income for taxes by the amount depreciated. Then you sell it - and the sale price is added back to your income for taxes. For balance sheet purposes the motorcycle is worthless, and when you sell it the income adds into current gain for the business. For individuals depreciation is not a thing. It is only related to businesses and business income/balance sheets.
    – littleadv
    Commented Sep 25, 2022 at 16:05
  • Oh, I see. Depreciation is not useful for my case then, but still, it's an asset I have that affects my net worth. How should I record it in my account book? I have created a transaction of 4100 BRL from Equity:Other to Assets:Fixed Assets:Honda CG 150 Titan, dated from 01 January 2006. Should I leave it this way, even though the motorcycle nowadays is worth more than that?
    – Giovanni L
    Commented Sep 25, 2022 at 16:12
  • @GiovanniL You can create an "unrealized capital gains" account and use it to adjust the value. Technically, in accounting, for balance sheet you leave the value as purchase price-depreciation, which in your case would remain 4100 BRL.
    – littleadv
    Commented Sep 25, 2022 at 16:16
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    I did some research and GnuCash has a chapter in its Guide explaining this: gnucash.org/docs/v4/C/gnucash-guide/capgain_example1.html
    – Giovanni L
    Commented Sep 25, 2022 at 21:20
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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.

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