Hello everyone,
It is probably very simple; nevertheless I seem to have got stuck with accounts preparation and claiming the AIA.
Could you please advise how to account for a loss resulting from AIA claim?
What I would like to find out is how to show this loss on P&L and SOFP.
Scenario.
Assume that a company had a £100 profit for the year and about £120 worth of AIA to claim leaving the company with a £20 loss. I have absolutely no idea how to treat this loss as the accounts will just not balance due to AIA being claimed on Capital Expenditure, thus I cannot put it on P&L.
What do I do in this situation please? How do I show AIA on the face of the balance sheet? Or do I even show it at all or will it just be a £20 loss input somewhere in ct600?
If someone could advise what to do with these entries that would be great? Double entry items would also be appreciated please. I have never been in this situation where AIA was greater than profit for a period and I have absolutely no idea how to resolve it.
Thank you very much for any help.
Replies (40)
Please login or register to join the discussion.
AIA will not appear anywhere in the accounts at all, since it has nothing to do with the accounts, unless you are making a deferred tax provision. Your accountant will do this for you if needed.
If you have claimed AIA you must have some deferred tax to account for.
You plainly do not understand what deferred tax is.
AIA not CLAIMED does indeed become WDA in future years. AIA not USED does nothing of the kind. If it exceeds the available taxable profit it will become an tax loss to be carried forward to offset any future profits after capital allowances.
Sorry, but you should not be doing accounts for paying customers. You do not have the requisite knowledge or experience.
Your deferred tax would go into the tax charge in your P&L and into provisions in your balance sheet.
From you figures the increase in the company's deferred tax liability during the year is likely to have been £20 but proper calculations will be needed to be sure. As you know so much about deferred tax you have presumably done those already.
I'm happy to answer this question. However, I do agree with others that you (either as an employee or being in practice as a trainee or otherwise) should't be responsible for preparing the accounts of a company. In fact, having to ask such a basic question on a forum also means you weren't bothered to do a basic Google search even;
Again as others have said deferred tax is an accounting entry and it has nothing to do with tax computation. Now going by your example:
Your bought an asset for £120 and are claiming AIA for tax purposes. Because the income is just £100, there is a loss £20 to carry forward for tax purposes. So for tax purposes:
Adjusted profit before CA - £100
Less: CA - £120
Loss - carried forward - £20
Capital allowance:
Additions to asets (whatever)- £120
AIA claimed - £120
___
WDV NIL
So the tax base of the asset is - £0
However for accounting purposes the asset base is the same i.e. £120 because you've not charged depreciation which is fundamentally wrong. Anyway the deferred tax is £24 (i.e. £120 accounting base less tax base which is £0 x CT rate which is 20% = £120 - £0 = £120 x 20% = £24).
Therefore, the P&L account will appear as follows:
Income £100
Deferred tax (£24)
Profit £76
(Basically, deferred tax will have the effect of restricting the distributable surplus)
On the balance sheet it will appear as a separate liability item under 'Provision for liabilities' - £24.
Note: there is a fundamental error in your example because depreciation must be charged every year in order for deferred asset charge to reverse in the following years.
I am assuming that all AIA not used in this period will become WDA for future periods to be written down accordingly to the rate applicable?
I am actually the one to prepare the accounts.
Thought so. You need to think about that until you've educated yourself. On the other hand, if your losses are only £20, I don't suppose the consequences of getting it wrong will be too bad.
Your initial question showed a lack of understanding. You were treated gently. Your subsequent posts smack of rank incompetence and reckless arrogance. You want to put AIA into some poor client's accounts, then go right ahead. I just feel sorry for the poor sucker you have fooled into paying money for a chump with a stetson.
how can you possibly know anything about me?
By reading your posts. What else do we have to go on?
If you have ever passed any exams you ought to know what they look like and that scoring high does not equal you know the topic well.
You have adequately demonstrated that, thank you.
As far as I am aware my knowledge+ experience is more than adequate to what I do.
It isn't.
yackoob2000 wrote:
how can you possibly know anything about me?
By reading your posts. What else do we have to go on?
yackoob2000 wrote:
If you have ever passed any exams you ought to know what they look like and that scoring high does not equal you know the topic well.You have adequately demonstrated that, thank you.
yackoob2000 wrote:
As far as I am aware my knowledge+ experience is more than adequate to what I do.It isn't.
Have a day off, Tim.
When there were lots of posts daily, some of the comments were entertaining. Now there are just a handful of threads, all with snarky comments, it makes the site even more unpleasant.
Sticks and stones etc. It's not me you are hurting, just your clients. Please for their sake, stop dabbling before it costs them money.
Ask yourself the question - what would happen if the assets were sold for their book value of £120?
Actually, the questions to be asked are:
what would the tax be if the accounting profit were the taxable profit?
why is the actual tax figure not that amount?
will the responsible differences reverse at some time in the future, and at what rate of tax?
Can I ask you an honest question please?
Are you working as a recently graduated trainee in a firm, or are you working for yourself?
The question put to you is relevant because if you are relieving members of the public of their money in exchange for you providing services directly to them, then what you are doing borders on theft, given your blatant lack of competence.
I cannot see any relation of your question to the question asked.
Are you yet another person to tell me that if i cannot understand AIA fully i should not touch the accounts?I really wonder how your learning process went.
There is a few things I admit I do not know fully and THAT IS WHY I asked the simple question. No need for two more years of experience. Simple answer will do.
What I have noticed however a lot of you instead of trying to help, just try to preach.
I did not ask for any offensive or abusive comments from anyone.
I simply asked for guidance, which only select few seem to want to provide here.NOTE TO ALL:
If it is not your intention to help just stop "littering" this thread.
As Portia has correctly observed, I am trying to determine if you are a trainee employee or not. If you are then the question is perfectly acceptable. Although I do wonder why you wouldn't just go ask a colleague.
However, If as I suspect, you have an accountancy degree and decided to go it alone, then the question is simply unacceptable as it is so basic that anyone in business for themselves would not have to ask it.
You might think we are preaching, but we are trying to help you out. You cannot service clients on your own with a lack of basic knowledge that you so clearly have.
You should be doing your learning as an employee with someone to check your work. You are going to cause someone a substantial financial loss and they will sue you.
So now get off your high horse and listen to the advice you are been given.
Will you now answer my question? Are you employed or working for yourself?
You need to take your head out of your [***] and get a grip.
With an attitude like yours, I am sure as hell glad you are not an employee of mine.
What sort of a company do you work for if you can't ask a senior for assistance?
Or maybe you have already given them the attitude and they have told you to [***] off now, which I can fully understand.
With an attitude like yours, you won't get very far in this game as no one will want to teach you.
I saw this post earlier and just chuckled to myself the OP is very lucky Portia is very calm today.
I saw this post earlier and just chuckled to myself the OP is very lucky Portia is very calm today.
I saw this post earlier and just chuckled to myself the OP is very lucky Portia is very calm today.
I saw this post earlier and just chuckled to myself the OP is very lucky Portia is very calm today.