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Turnover or not...

Turnover or not...

Just been to see a potential client where they sell art.

They sell the art on behalf of an artist and collect commission for example 50% and then pay the other 50% to said artist - in their books they have income as say 10K and cost of sale as 5K, but surely this is incorrect and should only be turnover of 5K. I guess what they are sort of doing is overstating turnover which issues arise when they get to audit threshold.

Am I missing something here?


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25th Feb 2013 16:02

It should all depend ...

... on the terms of the agreement between your client and the artist.

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By redman7
25th Feb 2013 16:47

agent or principle?

as per BKD will depend on contracts

where is the risk on a debt going bad? If with the artist then I would suggest your client is an agent only and should account for commission only as turnover. this is a simplification of the issue but usually a good indicator.

turnover is only one element on the audit / small company threshold , the other two being balance sheet and employee numbers, you'd need to trip two of them to be an issue so turnover alone shouldn't affect anything...

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26th Feb 2013 12:32

Agree with OP

Where in the contract has the client taken title to the works of art? Unless they have I can not see how cost of sales arise.

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26th Feb 2013 13:54

At the point of sale Andy?

If the contractual arrangement is such that the gallery are selling the piece of art as principal and are required to pay the artist a proportion of the price achieved (within agreed paramaters), then they take title at the point of sale, when an obligation to pay the artist the agreed proportion "cost" arises.

Alternatively, it may be that they are selling as agent and are required to pass the proceeds on to the artist after deducting their agreed commission.

They are two sides of the same coin, but they are accounted for differently, and there hasn't been sufficient information provided to say which is correct.

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