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Hi There
I'm looking into the accounts of a software company. They turn over about £7m and claim about £1m profit.
They seem to make a lot of use of intangibles though. They capitalise software development costs rather than paying for it as it is incurred, which is not uncommon for a software company although not considered very conservative.
They propose to amortise it "over the estimated useful life of the asset" - so no fixed timescales, again not very conservative. The amount of intangible fixed asset goes up every year.
To date they have capitalised £1.8m of development as an intangible fixed asset. This increased by 700k to 1.8m last year.
What surprises me though is that they also have another 550k of Intangible Assets shown in their debtors, that is they have a current intangible asset, so they have amongst their debtors, 1m of trade debtors, 300k of accruals and 550k of intangible asset, down from 660k last year because they transferred some to the fixed intangibles on the balance sheet.
I'm not really familiar with the concept of a current intangible asset - it seems a very dodgy concept to me especially when the intangible current asset is shown year after year, I would have thought it needed to be accounted for in one year to be classed as current?
They have £2.2 m in cash but there is also £2.9m of "Other Creditors", dwarfing the normal trade creditors - could that be a loan from somewhere, it gradually increases year on year. The cash in hand and creditors figure stays at a similar level year on year.
They have net current assets of £300k but if that intangible current asset were removed from the debtors they would have net current assets of (200K) .
It seems a dodgy situation to me. They are a competitor to the company I work for and seem to consistently underprice to win business.
The directors withdrew 400k in dividends (minimal salary) and the cash flow shows after that they had an increase in cash of 500k, but they also had the various issues around increasing "other creditors" as well as capitalising more and more expenses.
Would the above accounts indicate their business is under pressure?
I'm looking into the accounts of a software company. They turn over about £7m and claim about £1m profit.
They seem to make a lot of use of intangibles though. They capitalise software development costs rather than paying for it as it is incurred, which is not uncommon for a software company although not considered very conservative.
They propose to amortise it "over the estimated useful life of the asset" - so no fixed timescales, again not very conservative. The amount of intangible fixed asset goes up every year.
To date they have capitalised £1.8m of development as an intangible fixed asset. This increased by 700k to 1.8m last year.
What surprises me though is that they also have another 550k of Intangible Assets shown in their debtors, that is they have a current intangible asset, so they have amongst their debtors, 1m of trade debtors, 300k of accruals and 550k of intangible asset, down from 660k last year because they transferred some to the fixed intangibles on the balance sheet.
I'm not really familiar with the concept of a current intangible asset - it seems a very dodgy concept to me especially when the intangible current asset is shown year after year, I would have thought it needed to be accounted for in one year to be classed as current?
They have £2.2 m in cash but there is also £2.9m of "Other Creditors", dwarfing the normal trade creditors - could that be a loan from somewhere, it gradually increases year on year. The cash in hand and creditors figure stays at a similar level year on year.
They have net current assets of £300k but if that intangible current asset were removed from the debtors they would have net current assets of (200K) .
It seems a dodgy situation to me. They are a competitor to the company I work for and seem to consistently underprice to win business.
The directors withdrew 400k in dividends (minimal salary) and the cash flow shows after that they had an increase in cash of 500k, but they also had the various issues around increasing "other creditors" as well as capitalising more and more expenses.
Would the above accounts indicate their business is under pressure?