An accounting question!

alisonrose3764 · 07/09/14 - 18:05

hi - any accountants out there?
I live in a flat - we own the freehold - all having one share in the ltd company.
In our accounts at the end of the year the freehold is shown as a tangible asset which I totally understand - but also as a loan? Thats the bit I don't understand - non of the flat owners have taken a loan out against the freehold.
Not sure any of us understand why this is - can phone the accountants tomorrow but thought someone out there would know?

tealady · 07/09/14 - 18:18

Are these the accounts for the limited company? Did the company buy the freehold outright with cash or did it borrow money to do this?

alisonrose3764 · 07/09/14 - 18:19

Hello - yes ltd company - and yes the freehold was bought outright some time ago I believe.
Thanks for replying.

alisonrose3764 · 07/09/14 - 18:20

And sorry - yes with cash - no loan or mortgage taken.

Keefy-boy · 07/09/14 - 18:24

So the freehold asset is a debit, and the 'loan' is a credit of exactly the same value?

When you acquired the freehold was it through the company, or did the residents acquire it individually?

alisonrose3764 · 07/09/14 - 18:27

Hello - yes shown as an asset and a loan - same value so effectively cancel each other out.
Not too sure of how it was bought - before my time - but think it was by the ltd company that was set up by the residents to run the building - who are the five flat owners who all own one share in the company - if someone sells up then the share has to be transferred to the new flat owner.
Hope that makes sense.

tealady · 07/09/14 - 18:34

Without the numbers and accounts it is hard to say.
For example, you say you bought after the company was formed, and you are not sure how it was purchased originally.
Perhaps the 'loan' is just the indebtness to each shareholder.
There may also be some information in the legal paperwork you have from when you purchased the flat and freehold share.

alisonrose3764 · 07/09/14 - 18:36

Yes I think it has to be shown as its something that all the shareholders own and the shares have no value.
Have spent ages googling but can't find anything.

alisonrose3764 · 07/09/14 - 18:42

Is this helpful? Its noted as 'shareholder loan account'?

Keefy-boy · 07/09/14 - 18:45

tealady wrote: »

Perhaps the 'loan' is just the indebtness to each shareholder.

i would imagine that is almost certainly the answer, the leaseholders bought the freehold and transferred it to the company without consideration.

alisonrose3764 · 07/09/14 - 18:49

Sorry to ask - but can you just explain - without consideration? I presume it means its just to make the balance sheet add up? Is that right?

tealady · 07/09/14 - 18:51

Assets have to equal liabilities, profit and loss and equities.
From what you describe it sounds like the asset is the freehold and the equity is the indebtedness the company has to each shareholder. I'm guessing the purchase price reflected the fact the freehold is owned by the flat owners.
A call to the accountant should clear it up, so hopefully the replies so far will assist in understanding their answer.

Keefy-boy · 07/09/14 - 18:51

alisonrose3764 wrote: »

Sorry to ask - but can you just explain - without consideration? I presume it means its just to make the balance sheet add up? Is that right?

They weren't inconsiderate just a term to say no money changed hands, and yes for every debit there needs to be a credit!

swingaleg · 07/09/14 - 18:53

Could it be that each share is in effect a loan to the company which has to be paid back from the company to the householder when they sell their flat

tealady · 07/09/14 - 18:58

swingaleg wrote: »

Could it be that each share is in effect a loan to the company which has to be paid back from the company to the householder when they sell their flat

That appears to be the case.
The company gets the money from the new owner and passes it to the old owner, as the company itself has no cash.
At least that makes sense to me, although only the company accountant can confirm this.

alisonrose3764 · 07/09/14 - 18:58

Thank you both so much - my A Level Accounts is very rusty - but that makes perfect sense.

Keefy-boy · 07/09/14 - 19:10

tealady wrote: »

That appears to be the case.
The company gets the money from the new owner and passes it to the old owner, as the company itself has no cash.
At least that makes sense to me, although only the company accountant can confirm this.

It's usual that any sum paid for this kind of thing is a token £1. The leasehold will be sold with the mandatory transfer of the seller's share or shares in the management company to the new leaseholder, the value of the freehold share through the share in the management company will simply be reflected in the price paid for the leasehold interest.

lemonbun · 07/09/14 - 19:11

alisonrose3764 wrote: »

Thank you both so much - my A Level Accounts is very rusty - but that makes perfect sense.

Is there any 'equity' in the accounts?

alisonrose3764 · 07/09/14 - 19:29

There is called up share capital - which is 5 shares at £1.
And actually the shareholder loan account is 116,825 not 11630 which makes sense as the shares are £5 which when added to the credit sum of 116,825 makes the sum of 116,830 which is the tangible asset.

lemonbun · 07/09/14 - 20:09

alisonrose3764 wrote: »

There is called up share capital - which is 5 shares at £1.
And actually the shareholder loan account is 116,825 not 11630 which makes sense as the shares are £5 which when added to the credit sum of 116,825 makes the sum of 116,830 which is the tangible asset.

As an accountant and a previous freehold/leasehold owner, I would not have done the accounts for the freehold in that way.

gemma-the-husky · 07/09/14 - 20:24

Out of interest. If the flat owners (freehold owners, or just long lease) together own the freehold, then who arranged for the preparation of these accounts?

alisonrose3764 · 07/09/14 - 21:00

We have to send all our accounts to an accountant to verify - as far as I can see the freehold has always been shown this way.
We have a company secretary who runs the bank account and sends off all the figures.

Hey there!

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