Menu
We undertake detailed modelling of fixed asset depreciation and lease calculation rules for both accounting and tax.
We monitor changes to ATO tax rulings and accounting standards like IAS 16 and IFRS 16 so you don’t have to.
And, of course, we are ISO27001 certified.
A real estate investment company or trust (REIT) typically holds a diverse portfolio of fixed assets, primarily comprising real estate properties. These assets usually include office buildings, shopping centers, apartment complexes, industrial facilities, hotels, and other income-generating properties. Additionally, REITs may also invest in fixed assets such as land, leaseholds, and real estate-related assets like mortgages and real estate securities. Accounting for the variety of fixed assets held by a real estate company or REIT is essential for accurate valuation, effective asset management, regulatory compliance, investor confidence, and risk mitigation. Transparent and reliable financial reporting, specifically including accurate depreciation and lease movements on and off the balance sheet enhances stakeholders’ trust and facilitates informed decision-making.
Land: Not surprisingly land assets represent a foundational upon which real estate property companies are based. It is a tangible asset with an indefinite useful life and is initially recorded at its purchase cost, including acquisition expenses like legal fees and closing costs. Is real estate a fixed asset? Yes, but land is not subject to depreciation since it does not have a finite useful life. However, any improvements made to the land, such as site preparation or landscaping, may be capitalised and depreciated over their useful lives.
Buildings: Buildings encompass various structures such as office buildings, shopping malls, residential complexes, industrial warehouses, and hotels. These assets are tangible, subject to depreciation, and recorded at their historical cost, including construction costs, renovations, and improvements. Depreciation is typically calculated using methods like straight-line or accelerated depreciation, reflecting the gradual wear and tear of the building over its estimated useful life.
Leasehold improvements: These refer to enhancements made to leased properties to meet specific tenant requirements or to enhance the property’s value. These include interior renovations, installations, or modifications. Leasehold improvements are capitalised and amortised over the shorter of their useful life or the remaining lease term.
Furniture, Fixtures, and Equipment: FF&E encompass movable assets used within real estate properties, such as furniture, lighting fixtures, kitchen appliances, and machinery. Fixed asset real estate are tangible and subject to depreciation over their estimated useful lives, reflecting their gradual obsolescence or wear and tear.
Fixed asset depreciation and lease accounting play integral roles in the financial management of real estate companies or real estate investment trusts, offering critical insights into asset utilisation, financial performance, and compliance with regulatory standards. Here’s why these aspects are particularly important for real estate companies:
Accurate Asset Valuation: Depreciation allows systematic allocation of the cost of tangible fixed assets over their useful lives. By recording depreciation expenses, the organisation can accurately reflect the diminishing value of their assets over time. This ensures that the carrying values of assets on the balance sheet are reflective of their economic value, providing stakeholders with a true and fair view of the REIT’s asset base.
Profitability Assessment: Depreciation impacts the calculation of net income and profitability metrics such as earnings before interest, taxes, real estate depreciation calculator numbers, and amortisation (EBITDA). Proper depreciation accounting ensures that operating expenses accurately reflect the consumption of asset value over time, enabling stakeholders to assess the organisationβs operational efficiency and profitability accurately.
Tax Compliance and Planning: Depreciation expenses are deductible for tax purposes, reducing the organisationβs taxable income and overall tax liability. Accurate depreciation accounting ensures compliance with tax regulations and maximises tax efficiency by optimising depreciation methods and schedules. Effective tax planning based on depreciation strategies can enhance cash flow and shareholder returns for real estate organisations and their investors.
Asset Management and Maintenance: Depreciation accounting provides valuable insights into the aging and condition of fixed asset real estate in a portfolio. By tracking depreciation expenses, CFOs and accounting team management can assess the need for maintenance, repairs, or capital improvements to preserve asset value and extend asset life. Timely maintenance and capital expenditure decisions based on depreciation data can optimise property performance and enhance long-term asset value.
Investor Communication and Transparency: Accurate depreciation accounting enhances transparency and communication with investors, lenders, and other stakeholders. Investors rely on financial statements to assess the real estate companyβs asset quality, financial performance, and growth prospects. Clear disclosure of depreciation methods, assumptions, and estimates provides stakeholders with confidence in the REIT’s financial reporting and management practices.
Lease Classification and Recognition: Lease accounting standards, such as the Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) Topic 842, require organisations to classify leases as either operating leases or finance leases based on specific criteria. Proper classification ensures accurate lease recognition, with operating leases resulting in straight-line lease expense recognition over the lease term and finance leases requiring recognition of lease liabilities and right-of-use assets on the balance sheet.
Financial Statement Impact: Lease accounting affects the presentation of financial statements, including the balance sheet, income statement, and cash flow statement. ASC 842 requires organisations to disclose lease liabilities and right-of-use assets on the balance sheet, providing stakeholders with a comprehensive view of the real estate companyβs lease obligations and commitments. Lease expense recognition on the income statement impacts operating expenses, net income, and key financial ratios, influencing investor perceptions and financial analysis.
Compliance with Regulatory Standards: Lease accounting standards, such as ASC 842, aim to improve transparency, comparability, and consistency in financial reporting across industries. Compliance with these standards ensures that organisations adhere to accounting principles and regulatory requirements, reducing the risk of financial misstatements, restatements, or non-compliance penalties.
Risk Management and Decision-Making: Lease accounting facilitates risk management and informed decision-making regarding lease negotiations, renewals, and terminations. By accurately tracking lease obligations and commitments, real estate investment trusts and other property companies with fixed assets can assess lease performance, evaluate lease versus buy decisions, and optimise lease portfolio management strategies to mitigate risks and enhance profitability.
For real estate investment companies and trusts, the transition from spreadsheets or antiquated Windows desktop software to sophisticated cloud-based real estate accounting software solutions like AssetAccountant represents a pivotal shift towards efficiency, accuracy, and scalability. The adoption of cloud accounting in real estate offers significant advantages for real estate companies, including enhanced accessibility, security, scalability, automation, real-time reporting, and cost-effectiveness. By leveraging cloud technology, real estate investment organisations can modernise their accounting processes, optimise operational efficiency, and drive sustainable growth.
Accessibility and Collaboration: Cloud software enables real-time access to financial data from anywhere with an internet connection. This accessibility is particularly beneficial for REITs that may have multiple properties spread across different locations. With cloud accounting, stakeholders, including property managers, accountants, and executives, can collaborate seamlessly, view updates instantly, and make informed decisions based on the most up-to-date information.
Data Security and Compliance: AssetAccountant is internationally data security and ISO27001 certified thus offers robust security measures including encryption, multi-factor authentication, and regular data backups, mitigating the risk of data loss or breaches. This is especially important for businesses handling sensitive financial information and adhering to regulatory requirements such as Generally Accepted Accounting Principles (GAAP) and International Financial Reporting Standards (IFRS).
Scalability and Flexibility: AssetAccountantβs real estate accounting software is scalable for those businesses rapidly increasing the number of fixed assets they have on their balance sheet requiring depreciation and/or lease accounting treatment. Whether acquiring new properties, expanding operations, or managing complex financial transactions, cloud software can seamlessly adapt to accommodate increased data volumes and user demands. AssetAccountant offers flexible subscription models, allowing businesses to scale resources up or down as needed, thereby optimising costs and operational efficiency.
Automation and Integration: AssetAccountant for USA business and real estate organisations all over the world streamlines repetitive tasks and automates manual processes, reducing the potential for errors and freeing up valuable time for your accounting team. Integration capabilities with popular General Ledger software (I.e. Xero, QuickBooks Online) and ERPs (I.e. Sage Intacct, Microsoft D365) Β facilitates seamless data flow and eliminate the need for manual data and journal entry, ensuring data consistency and accuracy across platforms.
Real-time Reporting and Analytics: Being a contemporary cloud accounting platform, AssetAccountant provides robust reporting tools, empowering generation of real-time financial reports, performance dashboards, and predictive analytics. This real-time insight enables proactive decision-making when it comes to fixed assets, timely identification of trends, and optimisation of financial performance across any property portfolio.
Cost-effectiveness: AssetAccountant accounting software in real estate will save your accounting teams time and money. The cost savings compared to traditional on-premisesβ real estate accounting software eliminates the need for significant upfront investments in hardware, infrastructure, and maintenance. Additionally, our cloud-based subscription models involve predictable annual/monthly fees, reducing the total cost of ownership and enhancing financial predictability.
Fixed asset depreciation software and lease accounting software. Saving you from spreadsheets since 2019.
