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Hello! Please could you help me with the following question:
There are two related parties.
One is a company that makes chairs and the other is a farming company.
The latter is not in good financial position and as a result, the chair making company has purchased Farming Non current assets on behalf of the Farming company (THROUGH THE CHAIR MAKING COMPANY’s bank account). These assets are currently being used by the farming company)
During the audit, the auditors of the chair making company have told me that the asset capitalized in the chair making company’s BS does not meet the definition of an NCA (…future economic benefits are expected to flow to the entity…).
1) How do I treat the asset in the books now for the Chair Co. Do I expense them off or do I sell them off to Farming Co.? If the latter, at what price do I sell them off at?
How do I get the assets on the books of the Farming Co. now?
NB: I would still like to get capital allowances off the farming equipment (if possible)
If you are allowed by the taxman to expense them, that means that you’ll get the entire cost allowed against your tax and I doubt that the Revenue Boys would like that.
So they’re assets. But I can see the auditors’ point of view. Why not get the chair company to rent out the farming equipment to the farm company – at an arm’s length rental cost?
Would that do it?
One consultant gave me the following advice:
I suggest that the asset is bought on behalf of Farm by Chair – it shouldn’t be a leasing agreement with income being generated through rental of the asset, rather the asset being bought by Farm, but paid by Chair.
I would expect to see the assets in Farm rather than Chair.
The ideal case would be to treat the value of the assets as a loan from Chair to Farm, entries would be as follows:In Farm:
DR Asset
CR Chair loan accountIn Chair:
DR Farm loan account
CR Cash/SupplierChair and Farm would then have a loan agreement detailing when the amount would be repaid to Chair, as well any interest charge.
You shouldn’t have the farming assets in Chair’s books, esp as they are not involved in this business.
Farm will then be able to claim allowances, etc as the assets are in their books.However, the problem is: wouldn’t this override the business entity concept?
The problem with renting it out is I don’t have a business license that allows the activity of leasing.
Alighere, your original post suggested that the farm equipment was already bought!
Given that it’s not already purchased by the chair company, why not simply lend the money to the farm and ten the farm can buy it for itself?
And let me say that this site is not really for students to seek practical advice – particularly when that student is, at the same time, taking advice from other consultants!
:-((((
Hi Mike; by consultant i meant a friend.
If it was not bought, yes! That would be the correct thing to do. Loan the money; set up a contract;but the problem is I have already bought it! Plus it was bought through the chair co. bank account
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