Flat Management reserves

Flat Management reserves

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I am preparing accounts for a flat management company which is a new client.  The old accounts show an other creditor which is the reserve fund.  I understood that such funds should be held in a separate bank account rather than just shown as an accounting entry.  Also there has been no change in this fund for several years and again I understood that each year the surplus or deficit from the trading accounts should be transferred to this fund.  Any comments appreciated.

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By TerryD
14th Jan 2015 10:50

Variable service charge?

If the company will be charging variable service charges, then you need to be aware of ICAEW technical release 03/11 which states that any money held by the company will be held in trust and is not an asset of the company. Contracts entered into by the company, though, could result in creditors at a period end (e.g. monthly window cleaning invoice paid after date): then there would be a corresponding debtor being funds due from the trust to pay the invoice. So there will always be nil net assets. Whether or not transactions on the trust bank account should appear in the P & L Account is still to be decided (!), but my feeling is in favour of excluding them (if they are included, then income should be accrued/deferred to give zero profit).

Any interest earned on the bank account will be subject to tax, but not corporation tax: it will be income tax to be declared on a trust tax return.

Some people, though, don't accept this, even though counsel's opinion has been taken on it, and of those that do think it is correct, many ignore it. I just think that you should be aware of it - and I certainly think you should read the document.

In any case, there is a legal requirement for service charge accounts (separate from the company's statutory accounts) to be prepared to show details of income and expenditure and to be sent to all members.

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By The Innkeeper
14th Jan 2015 10:59

& Remember

that there may well be a statutory requirement for the service charge to be signed off by a Registered Auditor

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By johngroganjga
14th Jan 2015 11:30

I am not sure why you think that there is a requirement for there to be an equal and opposite bank balance to match the "reserve fund".  What makes you think so?

What does the bottom half of the balance sheet look like, and where does the annual surplus or deficit in fact get posted to? 

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