Introducing long-term liabilities into new business

[Stan Bown]

Hi, I'm a level 4 student and do my own books and tax returns for a house I let. Period end 5/4/07 is the first period I'm accounting for. There's a couple of things I'm stuck on and would be very grateful for someone's help.

What are the entries for bringing a mortgage (long-term liability) into the business?

How do you revalue a building and then account for depreciation against the new value? I know how to deal with depreciation when and asset's value decreases.

Any answers would be very helpful. Alternatively, if you know of a text that covers this, please let me know.

Stan Bown

[peugeot]

The entries for the mortgage would be debit property (fixed assets) and credit bank loans (creditors).

When a building is subject to revaluation, then you debit the fixed asset and credit revaluation reserve (within equity). The depreciation that has been charged based on previous valuations is reversed out and depreciation is then charged on the revalued amount. To illustrate:

Cost was £100,000
Accumulated depreciation is £20,000
Revaluation £110,000

Debit property £10,000
Credit revaluation reserve £10,000

Debit accumulated depreciation £20,000
Credit revaluation reserve £20,000

Credit accumulated depreciation with deprec on the revalued amount
Debit P&L expense.

Hope that helps.

Kind regards
Steve

[Stan Bown]

Thanks, that's clear and helpful. I imagine that when you revalue, you also change the period over which the depreciation is charged. So, for instance, if it is five years since you valued the property, and the previous period of depreciation was 50 years, the re-valued asset would be depreciated over 45 years.

Stan