How healthy are the club's finances????

[yellow]

It's because accountancy is a bit like being in the magic circle - information is not shared with outsiders as it could destroy the illusion.

This is the best thing I have read here for a long time....

[ferrarilover]

So, Exile, our loss doesn't reflect a loss at all, merely arbitrarily determined depreciation of stuff we paid for many years ago (the Pop side, Family stand, players, carpet in the offices etc). Accordingly, the clubs finances are much better off than they look. Huzzah.

Matt.

[happytorq]

Matt - in accounting, when you have a large asset that you pay for, the cost for that asset is usually included in yearly accounts for the length of its use. So, say Bristow's Bench cos £1,000,000 and is expecting to be used for 20 years (incorrect numbers, I know, this is just for simplicity), the balance sheet would attribute the cost of the Bench as £50,000 per year. on the other side of the balance sheet they'd put ticket sales, and other income etc - this allows a company to better judge the financial benefit of a big asset.

I mean, yeah, it's a tad misleading, but it helps shelter the company for overtaxation in subsequent years.

[ferrarilover]

Ok, I've followed that from Exiles post (although a second run through never hurts). I can only presume that my assertion (above) that this means we are in a better, rather than worse position, is correct.

Matt.

[SteveDeckchair]

Matt, we are making a loss due to a range of things. The fact of the matter is, that neither you or I know what that reason actually is. We are merely saying it is unlikely to be down to the stand alone.

Maybe we paid Thea a load off her loan? Maybe we paid too much money on wages? Maybe our income was down? More than likely, all three. Unless you do the club finances our are the club accountant, you'd never know.

[ferrarilover]

Is it not feasible that it was all down to depreciation? I know absolutely nothing about this, so I'm making it up as I go. Given the stuff we've got (I presume everything from the Bench right down to bog roll and pencils counts towards the figure), we must be able to lose a little over a hundred grand in 12 months.

Matt.

[Lloyder5]

Depreciation usually applies to larger capital items; pencils and bog rolls are direct costs of running the business and will be dealt with under income and expenditure, as part of the annual budget.

[ferrarilover]

So much vagueness. Where is the line drawn then?

Matt.

[stu_h84]

A company can capitalise an asset if it has future economic value. It tends to be only high cost projects so that you can spread the purchase costs across the life of the asset. As a result you don't get a one-off hit in your profit and loss account in the year of purchase. The asset is then depreciated over it's useful economic life.

The depreciation charge is put through the P&L on an annual basis and the assets value will be reduced in the balance sheet as the year's go by.

[Glostergull]

It's also worth mentioning that for most larger things like Vehicles and other medium to large expenditure the item can be depreciated by a standard amount usualy accepted as 25% of it's value each year. So let's say our stand as reported cost us £2,000,000. The depcreciation can be booked at £500,000 the first year. The second year it's book value is now down to £1,500,000 so the tax man will allow us 25% of that value ie £375,000. the next year the residual value is then £1,125,000 so the tax man will allow us 25% of that figure. it will keep on reducing like that untill the value is reduced to zero.
But on the other hand. what can mitigate the tax reduction is the value of any money brought in via the football league as grant money. So that goes down as income. therefore the actual tax rebate it less as the grant increases our income. but that only happens in the early years depending on how long a period the grant is paid over.
The last thing to add into the accounts is how much the stand is actually worth as it lasts a long time. so this can affect the accounts as well. In the end it's all swings and roundabouts.( and if you have any of them they can be claimed for assuming you don't crash into them).

[SteveDeckchair]

Nice one Gloster! Quite correct, although you'd be mad to take a hit on the stand of 500k in one year. It all comes back to how long it lasts really.

Plus we only paid for a third of it....

[SteveDeckchair]

I doubt there's much goodwill after the purchase of the club from Mike Bateson........ boom boom!

I work with someone who used to be the accountant for a football league club, so I'll ask him about depreciating players!.

[leetufc]

Currently studying for my accountancy qulaification so hopefully should know something about this!

What's been said about depreciation is correct. You recognise it as an asset as it will bring future economic benefit (in the case of the bench, ticket sales) and depreciate it over it's useful economic life.

The easiest way to view depreciation is this:
If you rent a factory at £100k per annum, you have a cost each year of £100k. If you buy the factory for £1million in the first year and use it for ten years, you're getting the same benefit as before, so want to include costs that fairly reflect the usage.

So in the case of the bench, say we paid £1.5 million and we plan to use it for 30 years (rough figures). We're getting the same benefit each year from the bench so we need to include a cost year of £1.5mil/30years = £50,000 a year

However, we also received 2/3rd of the cost as income - we need to account for these on the same basis as above. So the £1million ould be classed as a liability (deferred income) and released as income over the same rate as the depreciation. £1mil/30years = £33,333.

Therefore the net effect of these would be a loss each year of £17,667 in relation to the bench.

Depreciation also depends on whether you expect to sell the asset at the end of usage for a value - in this case you would deprecaite the value down to what you expect to sell it for rather than zero - or if you have greater usage in earlier years (as in glosters example above).

As for players, i'm not sure how it works but I think you depreciate their cost over their contract length. I think it's something like this:

Bodin cost £70k so we would have an asset of £70k, and he's on a two year contract, so his depreciation this year would be £35k in the accounts. Therefore his carrying value is £35k. If we sold him for £50k we make a profit of £15k and include this in the accounts (his actual loss therefore is 20k but because we've included a 15k profit and 35k depreciation we still show a loss of 20k).

therefore players like Eunan and Bobby who we acquired for free would have no cost to include as capital at the start, so no depreciation, and therefore in the accounts will show pure profit on their sales.

Apologies if that was too technical.

[ferrarilover]

This is all lovely in theory, but it doesn't really stand up in practice. The cost of the Bench (since we're using that) is known and fixed, which is fine. However, what the accountants among us are doing is attributing a fixed lifespan to it. This we cannot do. We award it an arbitrary lifespan of 50 years, lovely, fine, perfect. In 20 years time, it burns down. What then? Equally, 50 years from now, the stand is just fine and dandy, we have neither the money nor the inclination to replace it. Then what?

Lee suggests that the benefit we see from the Bench is X value. That's lovely, provided we stay at the prices we presently charge. If, 4 years from now we're in the Premier League and charging £100/seat. What then?

Players: ok, Billy has a 2 year deal, that's fine. He was £70,000, so that's £35,000/year which we have no choice but to show as depreciation in his value. At the end of his present contract, he is therefore, worthless. That's lovely, until he signs another 2 year deal. What then?

All this seems to add up to accounts meaning absolutely bugger all in reality, because it's all theoretical predictions about how long things may or may not last and how much they may or may not, theoretically, be worth based on an arbitrary rate of depreciation based on some numbers plucked straight out of thin air.

What happens to my club's classic car collection, which is appreciating in value?

I'm not blaming you guys (it's obvious to anyone with half a brain, but I'm aware that doesn't apply to our entire membership, so I'm making it clear), and I'm sure there is MUCH more to it than can reasonably be explained here (to a layman). However, it is becoming increasingly clear just how Google and Vodafone manage to circumvent their tax liabilities, the system is so complex that no one could possibly hope to close all the loopholes.

It's a thing for which we have paid, take that money out of this years accounts and be done with it. Stop playing guessing games and make 'the books' an accurate and meaningful reflection of the facts of the matter.

Matt.

[leetufc]

Matt, I haven't got time this morning to answer all your points, but hopefully will do later. Let me just give you an example of why we do things the way we do rather than your way.

You set up a company this year, and you make £2million sales, all received in cash. To make those sales you buy goods for £3million but all on credit, so we haven;t paid for them yet.

On your basis of including everything when you pay for it, your accounts show that you make £2million this year from no outgoings, which is a minor miracle, when in actual fact you've made a loss of £1 million.

I then look at your accounts and see your wonderful money out of nowhere company, and because I'm naive, I buy it without spending time examining your business. I then find out that not only does your business makes a massive loss rather than a profit, but that I also owe your £3 million debt on credit purchases.

Therefore to avioid this happening we show that £3million as costs in the accounts (even though they haven't been paid for but to reflect how much you have theoretically spent making your sales) and a liability of £3million on the balance sheet as you owe this money.

As said, sorry I haven't gone into more depth but hopefully will have chance later, unfortunately i've got a mock exam this morning which I probably should be last minute cramming for