I am hoping for some advice regarding some accounts for a Community Amateur Sports Club I am currently creating.
I have taken over this from a previous accountant and each year there has been a transfer of funds from the Current Account to a Sinking Fund in this case to cover the cost of replacing tennis courts when the time arises.
I would expect this to be purely a balance sheet exercise since it is a transfer from one bank account to another but in this case the accountant has shown it in the income and expenditure as an expense and therefore reducing the Excess of Income over Expenditure. I am not particularly familiar with club and association accounts so I wondered if this was normal?
Thanks in anticipation
Valerie
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Responses are not meant as a substitute for professional advice. Answers are intended as outline only the advice of a qualified professional with access to all relevant information should be sought before acting on any response given.
I would agree with you about it being a balance sheet item, but like you, I'm not au faire with club and association accounts but I can't see how it can be an expense. Is it double entry and if so what's the other side of it? How would it be accounted for when the tennis courts are replaced?
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John
Any advice given is for general guidance and professional advice should be sought applicable to your circumstances.
There was no actual commitment to the expenditure at the time that it was deducted so if it was put the income statement it would at the very least need to be added back for tax purposes.
One argument would suggest that provisioning shows a better view of financial position but the fact is that there is no actual commitment to expenditure at the time of inclusion so inclusion actually makes performance look worse than it is without having any effect upon tax obligations of the client (Only if it had affected tax would I have been concerned by this).
For information the key to when a provision should be recognised is :
There is a present obligation as a result of past events
Settlement of the provision will require and outflow of resources embodying economic benefits
The amount of the obligation can be measured reliably
Now, from the explanation that you have given to me owning the tennis courts implies an obligation to maintain them, settlement will require financial outlay but how can the client know the cost until they know the extent of the repairs necessary? Would this not instead be a case where periodic maintenance (resurfacing) is capitalised and depreciated? (and as you say, provisioning for such kept on the balance sheet).
For info, the criteria for recognition of when subsequent expenditure on an asset may be capitalised is where it :
Enhances the economic benefits of the asset
Restores previously consumed economic benefits
Replaces a seperately depreciated component of an asset
If it had passed the provisioning checks then following your method shows the actual effect without need for adjustment where the accontants method requires subsequent adjustments in the tax calculations. Both approaches work but in the majority of instances I prefer yours.
Shaun.
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Shaun
Responses are not meant as a substitute for professional advice. Answers are intended as outline only the advice of a qualified professional with access to all relevant information should be sought before acting on any response given.
sorry, we crossed. I just keep dipping in and out of the site as juggling half a dozen things at once at the mo.
been a while since we spoke. Hope that you are good matey.
All the best,
Shaun.
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Shaun
Responses are not meant as a substitute for professional advice. Answers are intended as outline only the advice of a qualified professional with access to all relevant information should be sought before acting on any response given.
Many thanks for your replies. I feel reassured now that Iâm not going crazy. My next problem is how I show this without upsetting anyone. The previous accountant was a member of the tennis club who kindly did the accounts for no fee and members are used to seeing the format he used.
The treasurer expected to see the transfer in the I & E as he had always shown and was worried about explaining the accounts at the AGM. Would it be acceptable to add this at the bottom of the I & E page after Income over Expenditure figure as an extra figure just to keep all happy and therefore not affecting the Surplus figure carried forward to the balance sheet?
Thanks
Valerie
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Responses are not meant as a substitute for professional advice. Answers are intended as outline only the advice of a qualified professional with access to all relevant information should be sought before acting on any response given.
Or would you perhaps just add a note in the note to accounts?
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Responses are not meant as a substitute for professional advice. Answers are intended as outline only the advice of a qualified professional with access to all relevant information should be sought before acting on any response given.
I wouldn't worry too much about the change. You will increase the profit shown on the income statement with no increase in tax paid... What the client going to complain about?
As for the previous accountant, the argument is that they did the same thing in a differnet way which showed less profit but the tax (asll othwer things being equal) is the same.
Seems like a win for you to me.
Shaun.
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Shaun
Responses are not meant as a substitute for professional advice. Answers are intended as outline only the advice of a qualified professional with access to all relevant information should be sought before acting on any response given.
Thanks Shaun
Yes, that does make sense. In this case it is a CASC with no tax implications but as a community club with potential future clients I am perhaps trying too hard to be diplomatic. I need to be more confident and commit to my decisions.
Thanks
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Responses are not meant as a substitute for professional advice. Answers are intended as outline only the advice of a qualified professional with access to all relevant information should be sought before acting on any response given.
