Asset Appreciation Journal Entry Example

by Paul
(Mauritus)

Q: Becks introduced his van into the business $30,000. What is the amount to enter in capital account if it was $36,000 on 1 Jan?

A: From what I understand from your question, the van that was introduced originally cost $30,000 but for some reason is worth $6,000 more at a later point. That is a strange situation because assets like cars don't usually increase in value, but if this is what you meant, then this situation is what we would call asset appreciation or an upward revaluation.

To appreciate means to increase in value.

When the van was first introduced to the business, one would record the following normal capital journal entry:

Dr Motor vehicle (asset) $30,000
Cr Capital (owner's equity) $30,000

At a later point when we recognized that the van was worth more, we'd record the following:

Dr Motor vehicle $6,000
Cr Appreciation on Motor Vehicle (income) $6,000

The "Appreciation on Motor Vehicle" account above is an income account. This income is different than normal income. At the end of the financial year it would need to be moved over to a specific owner's equity account (separate from capital), called "revaluation surplus." This is the rule according to International Accounting Standard 16.

In contrast to this, upward revaluations (appreciations) are not recognized in US accounting (as far as I understand).

If the van was actually worth $36,000 at the time it was introduced to the business and the accountant incorrectly recorded its worth as $30,000, then one would not record appreciation or an upward revaluation but instead would correct this with the following journal entry:

Dr Motor vehicle $6,000
Cr Capital (owner's equity) $6,000

Since it was not a revaluation of the asset's value but just a correction, the credit here would just be to the normal capital account.

So, what do you think of my asset appreciation journal entry example? Did I get that all correct? Have another question? Add yours in a comment below.

Best,
Michael Celender
Founder of Accounting Basics for Students


Related Questions & Tutorials:

• Capital Investment Journal Entry
• Journal Entry Example: Complex Capital Investment by Owner (Compound Entry)
• Journal Entry for Asset Purchase

Advertise on Accounting-Basics-for-Students.com