Brewery "advance of discount" loans to publicans are repaid according to barrels purchased. The brewery annual statement usually summarises this and shows the resulting new balance owed at the end of the period. What is the recommended correct way of handling the annual reduction of the debt in the accounts? If an adjustment should be made to purchases, should an explanatory note be made since the GPR will be affected?
jeremy holmes
Related resources
Replies (2)
Please login or register to join the discussion.
reply to Mark
Above is helpful. Thanks very much. Client is sole trader (partnership) but may incorporate in 6m time.
Depends
It depends what the loan was used for. If loan was used for capital expenditure (eg improvements to property) write off discounts to capital. If loan was used for revenue expenditure write off discounts to cost of sales.
Publican client had one of these "loans" to build skittles alley. Inspector of taxes agreed that the receipt was not revenue and therefore not taxable as a trading receipt. Key words in loan agreement was "write off" of loan over period so long as so many barrels were purchased. see Mclaren v Needham 1960
Subsequent loans were not used for capital work. The amounts "written off" each year were therefore taxable as trading receipts just as if a discount had been given on barrels purchased during year.
Note to accounts - Limited company or Sole trader?