Hi everyone,
I am a little confused about how the Closing Stock value is calculated and how much it affects the P&L for a given period when using floor plan finance.
Just for those who may not know, Floor planning is a type of inventory financing for large ticket retail items such as vehicles. Retailers use a short-term loan to purchase inventory items, and the loan is repaid as inventory is sold or when the loan expires, generally within a few months from the purchase.
My main question is: should the loan amount of the FloorPlan be considered Stock Value? According to my accountant, yes. The problem here is that, if I have purchased a considerable amount of vehicles towards the end of the financial year using FloorPlan finance, this will mean that my Closing Stock Value for that period will be very high, therefore the profit will increase substantially even though I have not actually used the company money to purchase the stock and have not sold any of that stock. Basically, the higher the loan, the higher the profit (assuming I used the entire loan amount to purchase stock). Even though I trust my accountant, this does not make sense to me.
In my case, the profit and profit percentage calculated is extremely high and does not seem accurate. If this is all correct, it brings me concerns about the tax implications as the profit calculated far exceeds the actual profit made by the company.
I'm probably missing something here and would appreciate it if someone can guide towards the right answer.
I am a little confused about how the Closing Stock value is calculated and how much it affects the P&L for a given period when using floor plan finance.
Just for those who may not know, Floor planning is a type of inventory financing for large ticket retail items such as vehicles. Retailers use a short-term loan to purchase inventory items, and the loan is repaid as inventory is sold or when the loan expires, generally within a few months from the purchase.
My main question is: should the loan amount of the FloorPlan be considered Stock Value? According to my accountant, yes. The problem here is that, if I have purchased a considerable amount of vehicles towards the end of the financial year using FloorPlan finance, this will mean that my Closing Stock Value for that period will be very high, therefore the profit will increase substantially even though I have not actually used the company money to purchase the stock and have not sold any of that stock. Basically, the higher the loan, the higher the profit (assuming I used the entire loan amount to purchase stock). Even though I trust my accountant, this does not make sense to me.
In my case, the profit and profit percentage calculated is extremely high and does not seem accurate. If this is all correct, it brings me concerns about the tax implications as the profit calculated far exceeds the actual profit made by the company.
I'm probably missing something here and would appreciate it if someone can guide towards the right answer.