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Im looking at an SMSF at the moment which is using the cash basis of accounting and the following two events have taken place.
1. Real property deposit made for an acquisition – A deposit of $38K paid out of the SMSF in May 2021 (not due to settle until 26 July 2021 for a purchase price of $462,000).
a. In this situation (Cash basis), is it more appropriate to report $38k or $462k on the financial position at 30 june 2021?
b. If it were accruals basis, is it more appropriate to report $38k or $462k at 30 june 2021?
2. Real property disposal – A contract to sell a different property was signed on 30 April 2021, however settlement did not occur until July 2021.
a. In this situation (Cash Basis), is it appropriate to report the asset as NIL at 30 june 2021 (reporting it disposed already essentially) or at its market value on the financial position since it has not settled yet?
b. If it were accruals basis, is it more appropriate to report at NIL or MV at 30 june 2021?
c. Where does the difference (the receivable amount) typically go when reported at NIL at year end but not yet settled?
If you could please note the distinctions ive raised would be very helpful for a client im dealing with and into the future.
Hi Mark
Firstly as the Fund is a non reporting entity there are different ways you could do the accounting in relation to the buy & the sell of the properties & different firms will adopt different approaches.
The notes to the financial statement should state on what basis the financial statements have been prepared.
My view is if a Fund purchases a property in May 2021 & settles in July 2021 you should take up the full cost of the property at 30 June 2021 and the liability at that date (re the balance due).
The full value of the property has been taken up at 30 June 2021 as I assume the notes to the accounts state that the cash basis has been used however liabilities are reflected at the date the Fund is contractually obliged to purchase the property.
As normally the tax date of purchase is the date the contract of purchase is signed it arguably assists from an accounting / tax perspective to record the purchase of the property at the date the contract is signed.
Given the above approach re the purchase of the property the same approach will be done re the sale in April 2021 and settlement in July 2021. That is the Fund will record a debtor at 30 June 2021 in relation to the balance owing in relation to the sale of the property. The balance owing will be shown as a sundry debtor in the financial statements and in the annual return as "other assets". Again I assume the notes to the financial statements will support this approach.
I note that from a tax perspective the tax date of sale is normally the date the contract of sale is signed it therefore it arguably assists from an accounting / tax perspective to record the purchase of the property at the date the contract is signed.
Thanks
SMSF AAA