UK What's a Write Back in terms of Cash Losses?

[AnAspiringAccountant]

It's possible I'm getting mixed up here between Write Back, Add Back, Write Down and Write Off.

What with my interest in getting into football accountancy if I am to Write Back for example, a profit on the sale of a player is this a good or a bad thing for my figures?

It's measured Fee-Remaining Net Book Value and that represents the Profit/Loss on a Player.

Sell a player for £10m, who was signed for £4m on a 4 year deal.
Sold in Year 2, his remaining NBV is £2m...that's an £8m profit.

1.1.4 Cash Losses means aggregate Adjusted Earnings Before Tax after:

(a) write back of:

(i) amortisation and/or impairment of Players’ registrations; and

(ii) profit or loss on the transfer of Players’ registrations; and

(b) inclusion of net cash flow in respect of transfers of Players’ registrations.

Conversely if said player is sold for £1.5m in the same scenario, that's a loss of £0.5m for the year BUT £1m of amortisation is removed but nonetheless it's a loss.

In short, if I write back this Profit is it a good thing or a bad thing? Doesn't seem fantastically written though, on the face of it.

 

[Fidget]

If you write something back, it's a generally a good thing. That's because before you can write it back, you must've either written it off completely (reduced value to zero), or written it down (reduced value from the carrying amount in the accounts to an amount below that, but above zero). Both of those mean reporting a loss on whatever it is at the time. Then if the reason(s) for the write off/down no longer apply, you can write back/add back the amount written off/down, so you're effectively reversing the loss.

And although not relevant to your post, it's probably worth bearing in mind that Goodwill is an exception to all that. Once that has been written off/down it can never be reversed.

It can go the other way and you have to write back a debt that you owe that you've written off, but it's usually the other way round.

 

[AnAspiringAccountant]

Thank you.

Football Finances are weird though...

I lost £20m as a club, operationally speaking, but there was a profit on disposal of Player Registrations of £8m...Therefore my loss is £12 million for the season?

Amortisation..£10m for the year. Add to the figure or should that be subtract, or is it already included within the Operating Costs on the P&L?

Net Cash Flow...Well I made £10m in receipts but acquisition of player registrations £20m...net cash flow in terms of player registrations of -£20m or an improvement of £10m- and is it already accounted for in the Operational costs in the P&L?

Though, if it's all included in the P&L then it's very much a pointless thread- want to avoid risking double counting, especially in terms of net cash flow.

Tbh the Profit or Loss or Impairment is shown in the P&L and the amortisation within the Operating Expenses...it's the Net Cash Flow I'm slightly puzzled on!

 

[Fidget]

The P&L and cash flow are quite separate things. The P&L records income & expenses in the period they relate to (accruals basis) regardless of when cash is actually paid/received. The cash flow, on the other hand, reports movements in actual cash at the point it was paid/received.

The starting point for a cash flow (indirect method - which is the most common), is the operating profit/loss from the P&L. Adjustments are then made to it to remove 'non-cash' items. Depreciation/amortisation and gains/losses on disposal are all 'non-cash' items in the P&L.

To explain.. say you spend £10m on something and are writing it off over 5 years with no residual value. There's a charge to your P&L of £2m for 5 years. But! The whole £10m actual cash went out of your bank account at the time of purchase (assuming you're not paying by installments). So, the P&L will report £2m expense for 5 years, but the cash flow will report £10m actual cash paid in full in year 1.

So when you do your cashflow, the £2m charge to the P&L is added back to operating profit because it's not actual cash - the actual cash is the £10m that went out of your bank account at the time.

Gain/loss on disposal is essentially a depreciation/amortisation adjustment in the P&L. Sticking with the same example. You're at year 5, the asset now has a zero value on your books, and then for whatever reason somebody buys it off you for £1m. Gain on disposal = £1m which is the gain on disposal but a non-cash item in your P&L. It means that instead of depreciating at £2m a year, you should only have depreciated at £1.8m so that at the end of year 5 it has a book value of £1m, it's then sold for £1m and gain/loss on disposal = £0, so no entry in your P&L for it. You'd still have a cash inflow of £1m in your cash flow statement either way, but it's a non-cash item in your P&L, and would be added back/taken off operating profit depending on whether it was a gain or loss on disposal.

Not sure if any of that has helped or hindered.

 

[AnAspiringAccountant]

Thanks for this- I'll have a look in depth.

Problem is the FFP regs are a bit unclear- there's cash losses then there's FFP losses!

I know the Amortisation and how that works- asset cost divided by number of years...so it'd be net of £8m then?

So it's non cash items you add back or remove depending? Yet FFP seems to include Amortisation as well...cost of amortisation.

I sign a player for £8m, 4 year deal- cost of amortisation an additional £2m per season (except if you're Derby and their residual value ways)!

Straight line method is, Derby aside, the standard in football it seems.

I get the impression though that it'd be possible to hit the Cash Losses ie comply with them, but fail the FFP Tests- which is crazy!

If I write back the Profit on Disposal of Player Contracts, that means I add it back to the Statement of Comprehensive Income at the top?

Amortisation Charge- £7m- so that adds to the costs of course.
Profit on Disposal of Player Contracts- £10m- this offsets the losses a bit.
Inclusion of Net Cash Flow...I just include the Amortised Amount and the Cash Flow incoming for Transfers?