carole.businessheads
Member Since: 11th Mar 2009
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Founder and MD of Brighton Accountants BusinessHeads, working with business owners helping them to succeed by developing effective and practical business strategies. Offering hands on support and advice in financial control and review to manage their businesses better. Helping them to implement their own ideas, raise funds and offering suggestions based on many years experience working with and in owner managed businesses.
Previously worked in Corporate Finance and Tax specialisms within a boutique accounting practice during the nineties and before that in traditional practice as a business consultant in organisational development.
Work experience in organisational development and business finance within HSBC for 10 years after retail experience with Marks and Spencer on their management training scheme.
My corporate training working with owner managed businesses gives me a unique insight into the issues faced by those businesses and the solutions which can be effective for them.
My enthusiasm is in seeing my clients succeed and get more from their hard work so business strategy and tax planning are absolute essentials.
My answers
Hi Karina
We are Clear Books accountants and recall you were developing this but don't recall any announcement that it was available. I'll email you later about it.
That looks really good on the face of it. And, its developed by the people who created VT, a beautifully simple and inexpensive bookkeeping system that does everything a simple small business needs. Thanks very much cbp99.
This is a great practical tip. In fact, as you know, we're dealing with purchases. We did revalue the creditors balance which helped.
But most of the creditors had been paid in advance of the year end, being a travel operator they pay before or on date of departure and their accounts are done on a departure date basis. Hence we concluded all is well. Client still not happy!
Many thanks again. You have confirmed something we've been trying to establish. That the idea behind the valuation of the contracts is connected with the valuation of the transaction (in this case the purchase) at spot rate. Our client values his purchases at the rate of the forward contract. This is all done inside a booking system which we cannot unscramble. That means if were able to unscramble we would see an FX loss (this is the year to Dec16) on the transaction offsetting the profit on the FX contracts. Its explaining that which is difficult!! :-)
Thanks for your very helpful repsonse.
1) Functional currency here is GBP since only the purchases are in US$.
2) Absolutely.
3) One of my clients has not used SSAP20 in the past and I know he should be doing so now but that would require reprogramming his booking system which is also an issue. In this case there are also prepayments so that cost of sales is recognised after payment. Hence the gains/losses are already wrapped up in the cost of sales.
4) We are considering Hedge Accounting but as you say, seems OTT.
Looking at all the options. Would really like to hear from anyone who is experiencing this senario with their clients or company.
This is a travel operator and there must be many more businesses affected in this way. We are putting out feelers in the industry too.
Many thanks for your comment. I'm inclined to think it is material. If it werent then it wouldn't be a issue. We havent seen it in the training from Tolleys or PTP nor on anything we've had from the Financial Reporting Faculty but I'll have another look, particularly for webinars in the hope they shed some light.
Thank you for your comment. We have one client who now has an asset of £127k on the balance sheet split between the opening balance (transition figure) of £53k and £74k, additional tax of £16k this year with no additional cash flow. Next year he may not have as high a volume of contracts and so the asset we have will be written down. If he uses up all his contracted funds he could have a value of NIL and a charge to his P&L of £127k Thats what I mean by volatility, or am I missing something?
Hello Graham
I feel your pain! We've just done the accounts for a Travel Operator who buys contracts. We were able to get the info easily from their FX provider. They actually provided reports on the contracts held with values at the year end date. BUT I think this is a nonsense as our client now has £KKKs of additional profit on which they need to pay tax. And a distorted P&L and BSheet which is making it difficult for them to plan. I have become aware of the review FRED67 which is the one with the proposal to change the DLA disclosures (yippee!) and I've written to ACCA about this. We're holding up accounts and CTR until we get a response. I have no idea when the FRED consultation period ends but I will be writing to [email protected] in any case. I suggest we all do similar. I'll post any progress I make.
Xero - payments on account - VAT cash accounting
Having migrated from Sage to Clear Books and discovered that online system didn't deal with payments on account correctly we moved on to Xero having been advised that Xero did do this correctly.
Now we have converted I am reviewing our VAT Return for the first quarter and find, of course, that the idea of showing payments on account at the time of conversion as credit notes has led to contra entries on the vat return and hence no VAT has been accounted for on these payments on account.
We also had payments on account after conversion which were treated as 'prepayments' and these too have been allocated to the invoice now it has been raised.
As we know, the VAT point is date of invoice or payment whichever is the earlier and Xero ignores this, showing the credit notes and the 'prepayments' as dated the day of the invoice.
While the payments on account are shown as 'prepayments' on the system they do not show on the face of the customer account nor on the Aged Recievable report, so they almost disappear and you have to search for them on a screen (can't remember where just now!).
So, the solution is still not at hand, the whole thing is immensely and unnecessarily complicated. There is an option called 'over payments' where the payments on account can be accumulated on a nominal account. Perhaps this is a better option for the short term?
Xero also suffers from not having 'transaction types' in the way that Sage does and all they need to do is call these payments 'Payments on account' and treat them correctly and we'll all be happy.
As an aside, do not rely on the VAT Reconciliation Report. There is no drill down report for the VAT on Accounts Receivable but we have established that a difference is caused by not accounting for the unallocated prepayments in the ledger. We are told they are aware and await a correction.
I would not recommend Xero to any client if they cannot avoid payments on account.
Thanks Tony, I understand the premis but had always used the 'add back' method. Having found SP3/91 I know where that comes from and the whole thing becomes clear!