abacus12345 wrote:

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Hi,

 

Why is it that the value of interest owing is not held in the balance sheet? As a crude figure, a £10000 van comes with £2400 interest - As my understanding goes, each month lets say £100 goes straight to P&L. 

For an investor that is a fair amount of hidden expense owing. If we take a fellow who has a poor credit rating to the extreme, Not sure what you mean by this bit (its Sunday and Im still half asleep so that might explain it)  that hidden expense could be half the value of the van in interest alone. I've probably missed something, yet..

 

I guess it could be argued that following my logic then every bill which will need paying, gas electric etc should sit in the BS too for the full year until paid (I know obviously we have accruals but that isn't where I'm coming in from ;) ) Nor this bit. 

Do I take it that high value debenture notes follow the same logic with interest payments connected to them too?

 

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PCP finance, now this one; There is an option at the end of the agreement to either buy by virtue of a final payment, or return (as you know) So, up until the point of 'buying' the car you claim it as an expense - upon paying the final payment you can claim capital allowances? Now I know that with fuel, we go either AMAP, or full costs, fuel, services etc and a change is unavailable, unless the car is changed - Is there a similar set up to counter what I think?

 

Or is it a case of, for instance, you can expense £8000, then the final payment of £2000 becomes the figure which enters the main pool? 

 

Thanks

 

 

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Hello Johnny,

think that you are mixing up the limited rules for micro / small entities where investors don't give a s**t and providers of finance will go through the finances with a fine tooth comb rather than the picture thats painted in the accounts. With the rules for proper sized companies where in some instances disclosures would be required.

Taking the spirit of your question, I read everything under IFRS as the UK GAAP is in general a local adapation of international standards. However, for clarity you can look up FRS102 section 25 (and for interest on leases see section 20).

Under IFRS you should refer to IAS23 Borrowing Costs, IAS16 Property Plant and Equipment and IAS37 Provisions, Contingent Liabilities and Contingent Assets.

I prefer to read the IFRS then relate it to UKGAAP as that doesn't just tell you what is but also what will be which is why all of the major accounting bodies use IFRS when teaching accounting.

Borrowing costs may either be capitalised as part of the asset or written off to the P&L which has caused much debate as to consistency of application for comparison across entities.

The reality of interest though is that in many cases you owe only the interest that you have already suffered and by repaying the loan one ceases to owe interest so would it not be wrong to include expenditure that one does not owe in the body of the financial statements?

The notes to the accounts contain much of the important considerations for readers of the financial statements but how many casual readers only read the financial statements themselves!

The reality is that a contingent liability only exists if there is a present obligation to pay. In some cases with interest there is, in many cases (simplest example, an overdraft) there is not.

The question itself is a good one and shows that you are thinking about this. However, it also shows that I think that you need to be studying at the next level up where matters such as this are covered in depth.

If you are doing AAT level IV which is geared towards SME accounts I believe that post September 2012 they only cover the following standards :

IFRS 3 Business Combinations
IFRS10 Consolidated Financial Statements
IAS 1 Presentation of Financial Statements
IAS 2 Inventories
IAS 7 Statement of Cash Flows
IAS 10 Events after the Reporting Period
IAS 12 Income Taxes
IAS 16 Property, Plant and Equipment
IAS 17 Leases
IAS 18 Revenue
IAS 27 Separate Financial Statements
IAS 28 Investments in Associates
IAS 36 Impairment of Assets
IAS 37 Provisions, Contingent Liabilities and Contingent Assets
IAS 38 Intangible Assets

So IAS23 Borrowing Costs is sadly one of those absent from that list which is what has possibly led to this question.

I'm not suggesting that AAT put the other standards back in as AAT in only the equivalent of the ACCA fundamentals level (first three papers) and the last thing that they want to do is start frightening people off the profession. What I am saying is that if you are thinking about this sort of question then maybe its time to start thinking about studying at a different level as replies in forums cannot hope to do justice to the extensive answers required for questions such as this one.

kindest regards,

Shaun.

abacus12345 wrote:

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Hi,

Yes I completed AAT post 2012.

There was some watering down involved in the syllabus change IMO.

AAT is great for sure, it covers a great deal, but in places it is light, which is understandable as it has to be kept inline with other level 4 qualifications (Art / science / health and social care etc etc) in terms of depth on a like for like basis.

Without a doubt many of the answers I look for are within the levels of ACCA and CIMA.

I like to understand the 'why' as an oppose to the 'how' as that is the point in learning to become an accountant, as an oppose to learning how to do data entry.

Thanks Shaun

 

 

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 Johnny

I cant wait for the day when you say you have enrolled as an ACCA student.   You absolutely KNOW you want to.  

I know the whole going past TB is an issue as you dont think you can earn enough - so what is the fee income point you cannot go below?

Hey,

Being sensible - £18k ish..

The only reason I'm put off ACCA is the fear of completing the entire syllabus, to never be able to advertise it.

I've sort of talked myself out of CIMA -

Which leaves ATT > possibly CIOT, but then, I'm slowly talking myself out of that too because I figure what use is indepth tax knowledge without an equal amount of indepth accountancy knowledge to match.

Thanks

LOL

That's awesome. Do you advertise? Or is it word of mouth? From your signature I'm assuming you don't have a website. Can I assume that most of your clients aren't micro, and more small and upwards, in the true sense of a small business. Can I ask if it accountants who provide you with most of your leads. Your model is most definitely the exception rather than the rule. How important do you think location is to being able to achieve this? I'm almost bang in the middle in Wolverhampton, I know your neck of the woods is trendy :) Thanks

Indeed!!

I always assumed that the figures the bookkeeping companies throw about were bogus;

In my opinion, an average turnover, for an average bookkeeping would be under £25K PA (Bookkeeping to TB, as a full-time venture)

Likewise, an average accountant would turnover <£40K

Over on the AAT forum, there are one or two sole owners who claim to turnover circa £70K, that can either be down to one of three things;

1) Bull...
2) Many clients (If you've 100 clients, you work on your own, how can you dedicate yourself to the business owner?)
3) High prices

A combination of the three is probably where the sweet spot is!

Now obviously staff (should) create wealth, so if you've help obviously expect more income.

I totally agree that Joanne's knowledge is remarkable. I am shocked Joanne isn't a Chartered Accountant. I would go as far to say she would give a lot of them a run for their money.