Correct Accounting Treatment

jjp123

Hi,

I have come across the following situation, how do I correctly treat the following?

An entity bought an Fixed Asset in one accounting period, and was invoiced in the following accounting period.

E.G.

1/9/2010 pay €10,000 towards Fixed Asset costing €12,000. They acquire and use the asset at this time. No invoice is received.

1/3/2011 they receive an invoice for this asset for full amount, invoice date 1/3/2011, with a statement showing an outstanding amount of €2000.

Thanks for the help!!

SBWife

In this case the transaction occurs when the delivery is made.

Asset of €12,000 is recorded along with payment of €10,000 and payable of €2,000.

jjp123

The issue that complicates this for me:

This is a sole trader in the first period, and becomes a company on the 01/01/2011. The invoice is made out to the company.

smeharg

jjp123 wrote: »

The issue that complicates this for me:

This is a sole trader in the first period, and becomes a company on the 01/01/2011. The invoice is made out to the company.

A soletrader does not "become" a limited company.

The company is established then the business is transferred to the company.

You need to get that bit sorted before you know how to treat the balance owing to supplier. There can be CGT implications if it isn't done right.

Most likely there will be an amount of €2,000 owing to the owner/director which would offset against the final payment.

jjp123

The company incorporated over a year ago. The amounts are smaller than I mentioned, these were fixtures and fittings. The invoice has just appeared . How would you treat it? If this was your client?

What I did was

Posted an invoice for the amount without the VAT to the sole trader.
Transferred the balance outstanding to the company.

Posted the invoice with VAT to the Company, and posted a credit note for the initial amount posted to the sole trader to the company at the same time.

Thanks again

smeharg

Not sure what you've done there. The sole trader should have been closed off when the business was transferred and no other transactions should be necessary.

As I said, it will depend on how the assets and liabilities were transferred to the company on 1/1/2011. Say for argument's sake that the asset was transferred at cost at 12,000. That would create a 12k fixed asset and a 12k liability owing to the director. When the subsequent invoice comes in you would Dr Director's loan by 2k; Dr VAT & Cr Creditors; the payment would then be Dr Creditors Cr Bank.

The director may also have taken full consideration for the assets in shares. In which case you'd need to make sure the Dr to the director's loan account doesn't breach company law and the correct tax treatment is applied.

jjp123

Thank you for the help