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Provision for future capital expenditure

Plans for buying factory

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I have a company client owned 50:50 by 2 brothers.
One brother is in the midst of a divorce.
There are considerable reserves £400k and bank funds £320k on the last balance sheet although I understand trading has taken a downturn this year.

The same brother wishes to have "a year out"

I have been asked if any provision can be made in the accounts for their future intention to purchase a property to enable them to manufacture the plant they current buy in for their projects. This is to safeguard the future of the company long term
The intention I believe is to effectively earmark some of the reserves to protect them from the divorce settlement.
My answer was that other than making their intended plans known via the directors' report there was no scope for "providing" the funds out of reserves.

Any thought please?

 

 

Replies (3)

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By johngroganjga
12th Apr 2018 11:55

There is no accounting basis for making such a provision, but even if you did it would have no effect on the divorce settlement. The way to deal with it in the negotiations leading to the divorce settlement is simply to explain that the funds in question are not surplus funds because the company requires them for etc. etc.

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By pushtheriver
12th Apr 2018 12:05

Thanks John. Pretty much my thoughts. As a sole practitioner, often when a client asks a question to which you're fairly certain of the answer it's useful to have some further views for when you (usually) disappoint them

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paddle steamer
By DJKL
12th Apr 2018 12:15

As part of the divorce process is someone being appointed by each of the divorcing parties to vale the shareholding of the brother divorcing?

Obviously the significance of the cash on the balance sheet will, to a degree, depend upon the valuation approach (Div Yield, Earnings yield, NAV, Hybrid etc) to be taken re the company and thereafter the divorcing brother's shareholding itself.

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