The holding company will not provide their own funds, their 30% is in return for their expertise and connections, where they will manage and execute the projects and will not provide funds but completely administer the end to end development of the properties. The 70% of investors are simply investors where they will allow the holding company to pay for the purchase of the development of each site as the Directors see fit, but the shareholders want advice on whether it is best to have it as loan agreements or equity invested.
I think I know the answer, but I am just seeking re-assurance here and if I don't I will be connecting with a tax specialist. If they pay for share capital then they will end up paying dividend tax on their return on investment, that is what I believe is the difference between having it as a loan and equity?
Many thanks for all the responses. I am drawing a consensus here that it is appropriate for it to be charged as an operating lease and thus expense rather than hold on balance sheet on the basis that the likely intent is that the lessee will not own or highly likely not to own the asset at the end of the lease period, which is the case in this instance. IFRS16 makes it a bit more complicated, but for now I will stick to FRS102 arrangement as that is the basis of accounts preparation for this company at the moment.
Firstly, thank you for such a prompt reply. That is what my understanding is too, but I am trying to convince myself whether there is actually any reason that would justify why the previous accountants never shown it as an asset? I am happy to correct this when I submit, but it's a sudden change in both the assets and liabilities, with large amounts, so wanted to ensure I was not mistaken in any way and I have read the Leases section under FRS 102 several times and I cannot see why they have not treated it as an Asset.
My answers
The holding company will not provide their own funds, their 30% is in return for their expertise and connections, where they will manage and execute the projects and will not provide funds but completely administer the end to end development of the properties. The 70% of investors are simply investors where they will allow the holding company to pay for the purchase of the development of each site as the Directors see fit, but the shareholders want advice on whether it is best to have it as loan agreements or equity invested.
I think I know the answer, but I am just seeking re-assurance here and if I don't I will be connecting with a tax specialist. If they pay for share capital then they will end up paying dividend tax on their return on investment, that is what I believe is the difference between having it as a loan and equity?
Many thanks for all the responses. I am drawing a consensus here that it is appropriate for it to be charged as an operating lease and thus expense rather than hold on balance sheet on the basis that the likely intent is that the lessee will not own or highly likely not to own the asset at the end of the lease period, which is the case in this instance. IFRS16 makes it a bit more complicated, but for now I will stick to FRS102 arrangement as that is the basis of accounts preparation for this company at the moment.
Firstly, thank you for such a prompt reply. That is what my understanding is too, but I am trying to convince myself whether there is actually any reason that would justify why the previous accountants never shown it as an asset? I am happy to correct this when I submit, but it's a sudden change in both the assets and liabilities, with large amounts, so wanted to ensure I was not mistaken in any way and I have read the Leases section under FRS 102 several times and I cannot see why they have not treated it as an Asset.