Discounting a prepayment


O

Oscar

OK - first point, trying to make a benefit to P&L by doing some creative
(but legitimate) accounting.....

Want to know if it's at all possible to discount a prepayment on the balance
sheet, which has a life span of 30 years and take a credit to current year
P&L. Current prepayment is at historic cost which is net of write downs from
last 12 months. Original prepayment was about £2m. At the moment, the
amortisation is a simple £1.9m/30 years giving a £63K P&L hit a year which
unless the prepayment changes, will be £63K for the remaining 30 years.

The logic behind this is that it is similar to how provisions are calculated
which are discounted at Balance Sheet date to show the anticipated full cost
of the provision being paid in (potentially) several years time. If
discounting the prepayment now then as the annual write off is processed
then the value would be in line with time value of money over the next 30
years(??).
 
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T

Troy Steadman

Oscar said:
OK - first point, trying to make a benefit to P&L by doing some creative
(but legitimate) accounting.....

Want to know if it's at all possible to discount a prepayment on the balance
sheet, which has a life span of 30 years and take a credit to current year
P&L. Current prepayment is at historic cost which is net of write downs from
last 12 months. Original prepayment was about £2m. At the moment, the
amortisation is a simple £1.9m/30 years giving a £63K P&L hit a year which
unless the prepayment changes, will be £63K for the remaining 30 years.

The logic behind this is that it is similar to how provisions are calculated
which are discounted at Balance Sheet date to show the anticipated full cost
of the provision being paid in (potentially) several years time. If
discounting the prepayment now then as the annual write off is processed
then the value would be in line with time value of money over the next 30
years(??).
"Prudence" is an over-riding Accounting Principle (when not over-ridden
by "Matching", "Substance over Form", "Consistency", I can't remember
the other three) so you can hardly be faulted for discounting a
prepayment. Except by the professionals here who will immediately cry
"Foul!"

The best half of the Accounting Profession work this way:

"What do I have to do to get what I want to achieve?"

....legitimately of course. The same way your lawyer thinks:

"What do I have to do to get my client off?"

In ukba the cry is:

"Anyone who alters anything is on the fiddle".

"Your only hope is to plead guilty!"
 
D

DoobieDo

The best half of the Accounting Profession work this way:

"What do I have to do to get what I want to achieve?"

...legitimately of course. The same way your lawyer thinks:

"What do I have to do to get my client off?"

In ukba the cry is:

"Anyone who alters anything is on the fiddle".

"Your only hope is to plead guilty!"
troll had a bit more wine than s/he can handle with the roast beef today ;p
 
T

Troy Steadman

DoobieDo said:
troll had a bit more wine than s/he can handle with the roast beef today ;p
"Matching" Doobie. Only two more to go!
 
P

Peter Saxton

OK - first point, trying to make a benefit to P&L by doing some creative
(but legitimate) accounting.....

Want to know if it's at all possible to discount a prepayment on the balance
sheet, which has a life span of 30 years and take a credit to current year
P&L. Current prepayment is at historic cost which is net of write downs from
last 12 months. Original prepayment was about £2m. At the moment, the
amortisation is a simple £1.9m/30 years giving a £63K P&L hit a year which
unless the prepayment changes, will be £63K for the remaining 30 years.

The logic behind this is that it is similar to how provisions are calculated
which are discounted at Balance Sheet date to show the anticipated full cost
of the provision being paid in (potentially) several years time. If
discounting the prepayment now then as the annual write off is processed
then the value would be in line with time value of money over the next 30
years(??).
You are not giving much detail? What is the payment for? Are you sure
it isn't purchasing an asset?

If you have made a prepayment then the payment has been made and there
is no logic in discounting it.
 
M

mhaque97

You are not giving much detail? What is the payment for? Are you sure
it isn't purchasing an asset?
If you have made a prepayment then the payment has been made and there
is no logic in discounting it.
 
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P

Peter Saxton

You are not giving much detail? What is the payment for? Are you sure
it isn't purchasing an asset?
If you have made a prepayment then the payment has been made and there
is no logic in discounting it.
I couldnt have put it better myself!
 
T

Troy Steadman

Peter said:
I couldnt have put it better myself!
You have to give the OP credit (or as he would probably mean debit) for
a fine bit of impressive-sounding gobbledy-gook - managing to convey no
information whatsoever, and capping it off with not replying to
correspondence!
 
K

Keith

Troy said:
You have to give the OP credit (or as he would probably mean debit) for
a fine bit of impressive-sounding gobbledy-gook - managing to convey no
information whatsoever, and capping it off with not replying to
correspondence!
Gobbledy-gook (outside government circles) is misunderstood,
underfunded and deserves greater recognition.

A fine student, Troy. Congratulations.

<c-h-r>
 
J

Jonathan Bryce

Troy said:
Oscar wrote:
"Prudence" is an over-riding Accounting Principle
Not any more
(when not over-ridden
by "Matching", "Substance over Form", "Consistency", I can't remember
the other three) so you can hardly be faulted for discounting a
prepayment. Except by the professionals here who will immediately cry
"Foul!"
Accruals (matching), going concern and consistency
 
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