UK Do Loans count as profit?


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Asset sale and leaseback and recognition as profit.

Essentially, in 2019, a company sold their fixed asset to a commonly owned company for £56.7m.

What I found interesting was that it was classified under "Debtors" and the category was "Other Loans". Unsure where the other £5m arises though.

Other Loans comprised the price paid-NBV. Do we stick this in the P&L- given that there was nothing in the Cash Flow for Profit on Disposal?

This is under FRS 102 btw.
 

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Fidget

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Gains/losses on disposal go through the P&L, although they're a non-cash item because they're basically a depreciation adjustment. The actual proceeds of the sale can either be in a lump sum at the time of the sale, or, as it seems to be in this case, paid at a future date.
 
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Just seen this and checking in.

Thank you. Gains and Losses on disposal go through the P&L. Non-cash item, depreciation adjustment?

Read elsewhere that it is in the form of loans, or indeed offsetting. Given that Depreciation is excluded under FFP, ie if you have say £2m on depreciation in terms of fixed assets in a season, that is stripped out of your annual losses, I struggle to see how this profit can be applied for FFP purposes.

It's a massive breach of the spirit of the regulations at bare minimum.
 

Fidget

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Yes, it'll be reported in the P&L as a gain/loss on disposal, but it's essentially a depreciation adjustment. In an ideal world the net book value of an asset would equal any proceeds of sale, so that the gain/loss on disposal would be £0. But because depreciation is an estimate, if the proceeds of a sale are more/less than the book value, then you've under/over depreciated and so the gain/loss on disposal in the P&L basically adjusts depreciation to what it should've been.

I think the idea of FFP is to prevent clubs spending more than they've earned (according to google), so it seems that it's applied on a cash basis in which case it would be right to strip out depreciation. Under a cash basis, that would also mean it would be logical to only include loan repayments actually received in the period as income. If the full amount of loans is included, it's possibly because the notes to the accounts say that they're repayable on demand, so are perhaps being treated as having that money available (cash equivalents). That idea sounds a bit shady mind you.
 
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Ah yeah, was going to post a bit about FFP- depreciation adjustment eh? Interesting!

The gain on disposal was £36m or thereabouts. Sadly my print screen doesn't allow me to post it as before- is this in terms of profit on disposal when it's paid for in the form of other loans?

The cash basis thing...it is and it isn't. The loss limits allowed are £39m over 3 seasons in the Championship- the relevant League here- plus allowable costs, so say Depreciation £2m per season- it's £39m + £6m, say academy also £2m per season- it's a further £2m, women's football and community another £1.5m per season. So it's £39m + this expenditure.

Infrastructure expenditure, to an extent that's another- so too is Impairment of Fixed Assets.

In fact, FFP isn't about cashflow, necessarily- cash equivalents? Good points.

Current assets perhaps?

If you're sufficently bored, I can post the relevant accounts for you to have a look at.

To May 2019 in all cases.


Surely though, loans receivable implies a requirement to repay?

Or if they are loaned with the intention to get written off, does that not equate to a debt write off- something that doesn't sit right with me regarding FFP.

One thing is for sure...Rick Parry the current head of the EFL who took over after this transaction occurred and Aston Villa promoted, well his profile below- he has the following background, has taken on the following roles:

1) An early PL head.
2) Senior at Liverpool FC.
3) A chartered accountant by trade.
4) Has been an auditor.
5) Was on the UEFA FFP Control board.


His credentials are fantastic! He seems to take a strong line on the issue of FFP too so I wonder if he will want to reopen this case. I trust him if anyone to get to the bottom of the Aston Villa case.

On a side note, they had Exceptional Operating Income for HS2. In successive seasons- unsure how successive seasons worth is Exceptional or should be classed as such, for FFP at least.
 
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Fidget

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Yes - on the P&L side, a gain/loss on disposal is a depreciation adjustment. On the balance sheet side, the actual proceeds is either cash into the bank account or a debtor if the proceeds are to be paid by installment.

Loans receivable, as you say, do require repayment, or at least the expectation is that they will be repaid. If the likelihood is that they (or any debt for that matter) won't be repaid then they should be written off either in full or to the extent of the expected non-repayment.

Cash equivalents are just short term investments that are not actual cash in your bank account, but you can expect to get the cash paid to you - within three months is the rule of thumb, so you can treat it as a cash equivalent in the accounts.
 
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