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In our balance sheet under Assets we are reporting as follows.
24 Heat St Stamp Duty and legals on acquisition $20,450.13
24 Heat St Accumulated Depreciation -$40,841.00
24 Heat St Market Movement $125,789.55
24 Heat St Propert Purchase Price / Cost $486,710.45
Total of above = $592,109.13. We belive this amount represents Cost Base when determining CGT not Market Value.
We have obatined a third party expert valuation report that shows the value of the property as being $612,500. In our research and as per ATO guidelines the definition of Market Value is " an arms length transaction, it is the estimated monetary worth of an asset on the open market". Thus Market Movement $125,789.55 + $486,710.45 = $612,5000. When a valuer makes a valuation he does does not take into account Acquisition Costs or Accumulated Depreciation, he has no access to this information. He reports on what it would be sold for. What would be the proceeeds before any tax consideration.
We assert that we have complied with R8.02B by showing in the financials the Market Vale of $612,500 ( by adding the above 2 line items together ). That to report the Market Value as being in 1 line item as $592,109.13 ( instead using 4 line items as per bove ) would be incorrect and misleading to the members / users of this financial information.
Question 1
What is the market value to be reported $612,500 or $592,109.13?
Question 2.
Do you have an issue with how we are reporting in the financials? if so please clarify how we should be reporting so that it is not misleading when it comes to Cost Base when determing CGT.
Looking forward to your thoughts.
Hi Campbell
Thanks, yes my view is the value is $612,500 to be recorded in the accounts. That is the value in the accounts should be based on the valuation obtained.
Normally SMSF accounts are special purpose financial statements so there is the ability to show property and depreciation in differing ways in financial statements of a SMSF. That is the accounting approach can be explianed in the notes to the financial statements.
My view is that normally SMSF accounts do not record accumulated depreciation as a liability or a negative asset in the financial statements. That is normally the accumulated depreciation has been adjusted against the cost base of the asset.
As an example a Fund's property includes an air conditioning unit that cost $10,000 and is being depeciated over 10 years, the depreciation accounting entry each year is:
Dr Depreciation $1,000
Cr Cost of property $1,000
In this example there would normally be a further journal entry being against increase or decrease in value of the asset to record the property at its market value.
An example of a SMSF's statement of financial posistion is shown below from the BGL360 software and I note that the non residential property is depreciated. That is accumulated depreciation is not disclosed in the statement of financial posistion, the notes or in the investment summary.
I also note that BGL has an article re depreciation at:
https://support.sf360.com.au/hc/en-au/articles/360018418791-Depreciation-and-the-Financial-Statements
In that article BGL states "Simple Fund 360 is not designed to represent accumulated depreciation in the financial statements."
Thanks
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