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Bookkeeping and Home Remodelling

Written by: John Stewart

Article Overview: Remoddeling your home can be a popular way of adding value to a property, so long as the refurbishment is done with care. A recent inspection of a detached house in a local suburb revealed a potential ticking time-bomb. The vendor had put in a great deal of time and energy in remodellinmg this simple three bedroon house, and the results looked very presentable. So much so that the vendor had received a firm contract for a prospective purchaser, subject to a report from a local Building Inspector. And then things turned sour.

Bookkeeping and Home Remodelling

To the casual observer, there were a couple of cracked tiles on the floor, and a few hairline cracks in the external render, but nothing of consequence. The home had recently been painted, and with the new bathroom and half bathroom receiving a make-over, this house was very presentable.

The downhill slope to the front bedroom was rather a worry. The Building Inspection revealed a fall in the slab of almost four inches (100mm)! But what was the cause? No matter, a local company had come forward and given a quote in excess of $30,000 to underpin the house and "jack up the slab" to the original floor level.

It's a similar story often when a client presents their bookwork. On the surface everything looks great, and underneath there is a potential disaster. Often, as bookkeepers, we are asked to look at a client's bookwork, as they've been carrying out the data entry themselves.

There have been a number of occasions where the person doing the bookeeping has found a few problems, and the figures don't balance, so they make a few general Journal entries to "balance the books" and hope the problem will go away.

Well, maybe the problem does go away, but does it reveal the cause of the problem. And how do you, as the businesses owner, know that there wasn't a problem in the first place, and the "cover-up" work that has been done to your books has fixed the problem?

The vendor of the recently renovated property has covered up all the cracks. The external face brickwork has been rendered. Inside the walls and ceilings have been freshly painted, so that everything looks very presentable. But what is hidden behind the render, how bad were the cracks that appeared in the brickwork?

It's all very well to go and have the remedial work carried out, the floor slab raised, and some underpinning done to the house. But how would you know if that has fixed the problem, if you do not know the cause of the problem?

As bookkeepers, before we "fix up the bookwork" we like to go back to the source of the problem, and make any necessary adjustments whch often are as simple as an incorrect allocation, or an error in keying an amount or date.

Yes, the easiest and quickest solution is to make a journal entry and hide the mistake. Just as the vendor chose to render the external brickwork and hide the cracks - so that everything looks just fine.

The crunch has come that now the home owner is wanting to sell, nobody can make a fair estimation of the cost of fixing up the subsiding slab problem.

An engineer came to inspect the property. This engineer is very experienced in handling subsidence cases. He has recently been commissioned by the Queensalnd Government to carry out a survey of a residential area where many houses have suffered subsidence as a result of underground mining in the past.

So what is the true cost of this home renovation? The engineer shook his head, saying that if the home owner had got an engineer out to do a full report before any renovation work was undertaken, then they could look at the cause of the problem that had caused the slab to drop.

As the house stands, who knows what secrets are hidden behind the external render and internal painting. And without knowing the cause of the problem, who knows whether the remedial slab work and underpinning will do more good than harm.

Regardless of how much has been spent on the internal makeover of the house, the vendor is likely to face the consequences of his cover-up operation. He'll either have to sell the house at a hefty loss, or hold onto the house and turn it into a rental property.

Any potential purchaser would be taking a huge risk in purchasing this property, because there are too many unknowns. In a market where there are some "easy bargains" who needs to buy such a headache? This truly is an example of a costly renovation.

Be careful before to make any adjustments to your bookkeeping to get the figures "to balance", because if you do not really know what you are doing it can create more problems than it can fix.

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Article Tags: bookeeping, bookwork, brickwork, casual observer, ceilings, consequence, cracked tiles, data entry, disaster, downhill slope, external face, floor slab, four inches, hairline cracks, journal entries, local company, occasions, remedial work, sourc, underpinning



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