I agree there appears to be something more to it than what we have been told by the client but this is the version the client maintains. If there was more to it we are not likely to know.
With valuation of investment properties, the client has obtained bank loans secured against these properties post acquisition and bank's valuation is not materially different.
Given what we have as a negative goodwill would you agree the element related to investment properties will remain on balance sheet with stocks/accounts receivable element taken to P&L immediately and goodwill associated to depreciable assets on the basis of depreciation policy?
The seller had personal circumstances where he wanted to sell the business as soon as possible and our client acquired this at a large discount. The largest item on balance sheet of the acquired entities were investment properties which were valued before disposal by the seller. The net balance sheet value was also worth more than what our client has paid but the difference is not as significant as whilst comparing to fair value of non-monetary assets.
It was actually a transfer from partnership to the company. The difference between MV and cost wasn’t such as to give rise to significant level of CGT. The gift was made for SDLT reasons.
The invoices have been looked at and this shows the husband and wife travelling who both are directors/shareholders of the company although the costs are disproportionate i.e. £13k for 7 days for hotels and flight in one instance!
I am only preparing financial statements for the year and the audit will be carried out by our audit team. The findings in relation to previous year has been reported to audit manager for him to take this forward and deal with appropriately.
I don't think it is possible to change the company ltd by shares into LBG. At least it's not something I have done before. However, I propose to suggest them to change the name of the current company (so that the name they want is available) followed by forming a new company ltd by guarantee and move everything across.
Thanks Tim. Declaring profits is not an issue. It will take them years to be in a position to pay any CT due to level of losses brought forward.
It's just that we want to get this right if we are to take on the client. If the income is not taxable than we do not want to report this as taxable (irrespective of what their current accountants have done).
I think it might be better for me to ask them politely to take their business elsewhere.
The reluctance stems from the fact the organisation has substantial media and political exposure and the directors do not wish to setup a new company with a different name or even seem to suggest they have changed name. The company's aims and objectives listed on their website clearly represents public benefit.
We have not yet accepted the client so have not seen their accounts. However the income has always been generated from donations by general public. They have never traded and do not intend to trade
Thanks Justin. I have already advised on how this should be structured but noted some reluctance with the idea of this being setup as Company limited by guarantee or CIO.
There was always a shortfall of income over expenditure in previous years which has been reported by previous accountants as "trading loss" to carry forward for CT purposes.
Year and a half has passed since last set of accounts were prepared and we will eventually be looking at preparing accounts which are due shortly.
I was hoping to leave income and expenditure as such to be consistent with previous year(s) but disallow both for CT purposes to end up with no profit/no loss.
Do you think this will be an appropriate solution given the circumstances?
The key question is are these contributions subject to corporation tax on the basis the setup is not correct?
My answers
I agree there appears to be something more to it than what we have been told by the client but this is the version the client maintains. If there was more to it we are not likely to know.
With valuation of investment properties, the client has obtained bank loans secured against these properties post acquisition and bank's valuation is not materially different.
Given what we have as a negative goodwill would you agree the element related to investment properties will remain on balance sheet with stocks/accounts receivable element taken to P&L immediately and goodwill associated to depreciable assets on the basis of depreciation policy?
The seller had personal circumstances where he wanted to sell the business as soon as possible and our client acquired this at a large discount. The largest item on balance sheet of the acquired entities were investment properties which were valued before disposal by the seller. The net balance sheet value was also worth more than what our client has paid but the difference is not as significant as whilst comparing to fair value of non-monetary assets.
It was actually a transfer from partnership to the company. The difference between MV and cost wasn’t such as to give rise to significant level of CGT. The gift was made for SDLT reasons.
Market value of the property will be used on the date of disposal to calculate CGT.
The invoices have been looked at and this shows the husband and wife travelling who both are directors/shareholders of the company although the costs are disproportionate i.e. £13k for 7 days for hotels and flight in one instance!
I am only preparing financial statements for the year and the audit will be carried out by our audit team. The findings in relation to previous year has been reported to audit manager for him to take this forward and deal with appropriately.
I don't think it is possible to change the company ltd by shares into LBG. At least it's not something I have done before. However, I propose to suggest them to change the name of the current company (so that the name they want is available) followed by forming a new company ltd by guarantee and move everything across.
Thanks Tim. Declaring profits is not an issue. It will take them years to be in a position to pay any CT due to level of losses brought forward.
It's just that we want to get this right if we are to take on the client. If the income is not taxable than we do not want to report this as taxable (irrespective of what their current accountants have done).
I think it might be better for me to ask them politely to take their business elsewhere.
The reluctance stems from the fact the organisation has substantial media and political exposure and the directors do not wish to setup a new company with a different name or even seem to suggest they have changed name. The company's aims and objectives listed on their website clearly represents public benefit.
We have not yet accepted the client so have not seen their accounts. However the income has always been generated from donations by general public. They have never traded and do not intend to trade
Thanks Justin. I have already advised on how this should be structured but noted some reluctance with the idea of this being setup as Company limited by guarantee or CIO.
There was always a shortfall of income over expenditure in previous years which has been reported by previous accountants as "trading loss" to carry forward for CT purposes.
Year and a half has passed since last set of accounts were prepared and we will eventually be looking at preparing accounts which are due shortly.
I was hoping to leave income and expenditure as such to be consistent with previous year(s) but disallow both for CT purposes to end up with no profit/no loss.
Do you think this will be an appropriate solution given the circumstances?
The key question is are these contributions subject to corporation tax on the basis the setup is not correct?