nick
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Post by nick on Oct 14, 2016 19:46:59 GMT
If that were the case, there wouldn't be a provision on Lendy Ltd's balance sheet. I do not see why not - as per my explanation above.
Debit - Debtor (receivable from LPRL) Credit - Bank (cash paid to LPRL) Debit - Cost of provision fund contribution Credit - Provision for liabilities
Ok, now I get it, my accounting is getting a bit rusty! It certainty could explain how they could have both paid the cash across as well as continuing to show the provision. I guess the debtor would then be contra'd against the provision as losses are covered by LPRL. On reflection, showing a gross debtor and separate provision has a certain amount of logic given the uncertain nature of any final loss versus specific cash amount that may have been paid across.
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toffeeboy
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Post by toffeeboy on Oct 18, 2016 11:10:14 GMT
I do not see why not - as per my explanation above.
Debit - Debtor (receivable from LPRL) Credit - Bank (cash paid to LPRL) Debit - Cost of provision fund contribution Credit - Provision for liabilities
Ok, now I get it, my accounting is getting a bit rusty! It certainty could explain how they could have both paid the cash across as well as continuing to show the provision. I guess the debtor would then be contra'd against the provision as losses are covered by LPRL. On reflection, showing a gross debtor and separate provision has a certain amount of logic given the uncertain nature of any final loss versus specific cash amount that may have been paid across. But by doing that you are essentially duplicating the transaction in the balance sheet by putting it on both sides which inflates your current assets.
When a loan is paid back then the money should be returned to Lendy so credit cost of provision fund and debit bank. The whole point of having a provision in the accounts is to move it to the P&L, you don't make provisions and post it as a current asset as you are manipulating you asset ratios by doing that.
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Post by meledor on Oct 21, 2016 10:11:41 GMT
Ok, now I get it, my accounting is getting a bit rusty! It certainty could explain how they could have both paid the cash across as well as continuing to show the provision. I guess the debtor would then be contra'd against the provision as losses are covered by LPRL. On reflection, showing a gross debtor and separate provision has a certain amount of logic given the uncertain nature of any final loss versus specific cash amount that may have been paid across. But by doing that you are essentially duplicating the transaction in the balance sheet by putting it on both sides which inflates your current assets.
When a loan is paid back then the money should be returned to Lendy so credit cost of provision fund and debit bank. The whole point of having a provision in the accounts is to move it to the P&L, you don't make provisions and post it as a current asset as you are manipulating you asset ratios by doing that.
No. As the first debit is to debtors (current assets) and the second debit is to P&L I do not understand why you think current assets are inflated or how the transaction is duplicated.
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toffeeboy
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Post by toffeeboy on Oct 25, 2016 11:47:27 GMT
But by doing that you are essentially duplicating the transaction in the balance sheet by putting it on both sides which inflates your current assets.
When a loan is paid back then the money should be returned to Lendy so credit cost of provision fund and debit bank. The whole point of having a provision in the accounts is to move it to the P&L, you don't make provisions and post it as a current asset as you are manipulating you asset ratios by doing that.
No. As the first debit is to debtors (current assets) and the second debit is to P&L I do not understand why you think current assets are inflated or how the transaction is duplicated.
But if it has already been placed on you profit and loss then why do you need place any figure in your current assets? The transactions has been entered twice in your journal:
Debit P&L Credit Bank Debit Current Assets Credit Provision for Liabilities
Ignoring the first two lines as these are what I would expect to see in the accounts, the last two are manipulating the accounts to bring the amount paid, back into the current assets after they have been paid out of the bank. If you are putting the debit side as a current asset then the credit should be shown as a current liability, which it hasn't, otherwise you are manipulating the net current asset value of the company.
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Post by meledor on Oct 25, 2016 18:14:45 GMT
No. As the first debit is to debtors (current assets) and the second debit is to P&L I do not understand why you think current assets are inflated or how the transaction is duplicated.
But if it has already been placed on you profit and loss then why do you need place any figure in your current assets? The transactions has been entered twice in your journal:
Debit P&L Credit Bank Debit Current Assets Credit Provision for Liabilities
Ignoring the first two lines as these are what I would expect to see in the accounts, the last two are manipulating the accounts to bring the amount paid, back into the current assets after they have been paid out of the bank. If you are putting the debit side as a current asset then the credit should be shown as a current liability, which it hasn't, otherwise you are manipulating the net current asset value of the company.
"why do you need place any figure in your current assets?"
Because there is a debtor being the amount owed by the Provision Fund, Lendy Provision Reserve Ltd (LPRL). As I stated in an earlier post on this thread:
"Lendy Ltd has paid 2% of loans on inception as cash over to LPRL and has a debtor in its books for the same amount (LPRL will pay Lendy back when/if the loan is repaid)."
That there is a receivable is confirmed by savingstream when referring to that element when it is returned to the company:
"The accountants agreed to consider it a 'cost'. We only pay the tax on that element when it is returned to the company after repayment of a loan which can be in the following tax year."
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toffeeboy
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Post by toffeeboy on Oct 26, 2016 11:39:35 GMT
But if it has already been placed on you profit and loss then why do you need place any figure in your current assets? The transactions has been entered twice in your journal:
Debit P&L Credit Bank Debit Current Assets Credit Provision for Liabilities
Ignoring the first two lines as these are what I would expect to see in the accounts, the last two are manipulating the accounts to bring the amount paid, back into the current assets after they have been paid out of the bank. If you are putting the debit side as a current asset then the credit should be shown as a current liability, which it hasn't, otherwise you are manipulating the net current asset value of the company.
"why do you need place any figure in your current assets?"
Because there is a debtor being the amount owed by the Provision Fund, Lendy Provision Reserve Ltd (LPRL). As I stated in an earlier post on this thread:
"Lendy Ltd has paid 2% of loans on inception as cash over to LPRL and has a debtor in its books for the same amount (LPRL will pay Lendy back when/if the loan is repaid)."
That there is a receivable is confirmed by savingstream when referring to that element when it is returned to the company:
"The accountants agreed to consider it a 'cost'. We only pay the tax on that element when it is returned to the company after repayment of a loan which can be in the following tax year."
There isn't a debtor though, there isn't a debtor until the loan is repaid. If you are entering a debtor saying this money is due back then you can't at the same time say we are providing for the loan not being repaid. The money is being paid as a provision which is why it is entered into P&L, to then add another journal from current assets to liability provision is removing the fact is provision from the balance sheet and making it a provision for liability which is why I am saying it is manipulating the current assets in the accounts. Look at it this way:
Pay the provision fund: Debit Provision fund cost P&L Credit Bank Current Assets Journal for the money coming back: Debit Debtor from LPRL Current Assets Credit Provision for Liabilities Provision for liabilities
The net effect on the current assets is zero so whilst they have included it in the accounts they have then manipulated the current assets by moving the credit to provision for liabilities therefore not accounting for it within the current assets even though as they state the money has been paid out of the bank (current assets). The simple second journal changes their net current assets from 282k to 1475k, slight difference and in my view an in correct one as they aren't owed that money until the loans have repaid.
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Post by meledor on Oct 26, 2016 15:30:49 GMT
toffeeboy - I am going to have to draw a line under this one, as I not really sure what you're saying. It seems to merely consist of concerns about balance sheet geography as in:
"The net effect on the current assets is zero so whilst they have included it in the accounts they have then manipulated the current assets by moving the credit to provision for liabilities therefore not accounting for it within the current assets"
which even if true I cannot get terribly excited about.
I was amazed at your comment about debtors though:
- "There isn't a debtor though, there isn't a debtor until the loan is repaid."
which would like someone lending on the SS platform saying they had not got any amounts receivable until the borrower had repaid Saving Stream.
- "If you are entering a debtor saying this money is due back then you can't at the same time say we are providing for the loan not being repaid."
but this happens all the time with receivables on the balance sheet and then provisions (e.g. bad debt provisions) being made in respect of them.
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nick
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Post by nick on Oct 26, 2016 15:37:11 GMT
"why do you need place any figure in your current assets?"
Because there is a debtor being the amount owed by the Provision Fund, Lendy Provision Reserve Ltd (LPRL). As I stated in an earlier post on this thread:
"Lendy Ltd has paid 2% of loans on inception as cash over to LPRL and has a debtor in its books for the same amount (LPRL will pay Lendy back when/if the loan is repaid)."
That there is a receivable is confirmed by savingstream when referring to that element when it is returned to the company:
"The accountants agreed to consider it a 'cost'. We only pay the tax on that element when it is returned to the company after repayment of a loan which can be in the following tax year."
There isn't a debtor though, there isn't a debtor until the loan is repaid. If you are entering a debtor saying this money is due back then you can't at the same time say we are providing for the loan not being repaid. The money is being paid as a provision which is why it is entered into P&L, to then add another journal from current assets to liability provision is removing the fact is provision from the balance sheet and making it a provision for liability which is why I am saying it is manipulating the current assets in the accounts. Look at it this way:
Pay the provision fund: Debit Provision fund cost P&L Credit Bank Current Assets Journal for the money coming back: Debit Debtor from LPRL Current Assets Credit Provision for Liabilities Provision for liabilities
The net effect on the current assets is zero so whilst they have included it in the accounts they have then manipulated the current assets by moving the credit to provision for liabilities therefore not accounting for it within the current assets even though as they state the money has been paid out of the bank (current assets). The simple second journal changes their net current assets from 282k to 1475k, slight difference and in my view an in correct one as they aren't owed that money until the loans have repaid.
: my initial thoughts was similar to your's, ie that a net position be shown with no grossing up of debtors and provisions on the balance sheet. However, on further reflection, I believe it is appropriate to show the gross values on the balance sheet rather than just netting the balances because as it more fairly reflect the underlying transactions. It is useful to separate the two related, but different transactions being posted: 1. A charge to the P&L has been made to account for the like liability that will be incurred in event that the company covers some of the losses on loans made. This is not a legal liability as Lendy Ltd has no legal contractual obligation to pay, but it is a constructive obligation. Therefore it is appropriate to classify the liability under charges and provisions on the balance sheet and such treatment is required under UK GAAP (the full stat accounts should show all gross movements in the provision, ie charges against and payments made). Entries Dr P&L (P&L), Cr Provision & charges (BS). 2. Lendy Ltd has effectively made a cash prepayment to the provision fund entity (assuming this is the case). This amounts is a effectively a deposit against payments that may be made by the provision fund in the future (within one year). This results in Dr Debtors (BS), Cr Cash (BS). Until any losses are actually claimed, the debtor clearly represents the amounts owed to Lendy Ltd and such not be netted against future charges against this amount. I think it would be misleading just to net-off the debtor with the provision fund (as well as against UK GAAP). The value of prepayment is not in question, the value of future obligated losses are and are recorded as such in provisions for charges. It is unfortunate that this treatment does inflate net current assets, but is more a function that charges for provisions and liabilities are categorised as non-current irrespective of the expected timing of their crystallisation.
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toffeeboy
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Post by toffeeboy on Oct 26, 2016 16:10:59 GMT
toffeeboy - I am going to have to draw a line under this one, as I not really sure what you're saying. It seems to merely consist of concerns about balance sheet geography as in:
"The net effect on the current assets is zero so whilst they have included it in the accounts they have then manipulated the current assets by moving the credit to provision for liabilities therefore not accounting for it within the current assets"
which even if true I cannot get terribly excited about.
I was amazed at your comment about debtors though:
- "There isn't a debtor though, there isn't a debtor until the loan is repaid."
which would like someone lending on the SS platform saying they had not got any amounts receivable until the borrower had repaid Saving Stream.
- "If you are entering a debtor saying this money is due back then you can't at the same time say we are providing for the loan not being repaid."
but this happens all the time with receivables on the balance sheet and then provisions (e.g. bad debt provisions) being made in respect of them. What in your opinion is net movement of current assets? I am looking at this from an accounts point of view so a net asset ratio is always KPI.
Why do you think there is a debtor? The money I am lending on SS is an investment/asset, I am not claiming it against my income in the way that SS are so you can't compare the two. That is my argument on this how can you provide for something as a potential loss and then enter it as an asset?
But the receivable isn't owed to SS (okay the old model some of it is owed to them, but this has now changed) the receivable is owed to us the lenders. The provision is a potential liability to SS so therefore a credit hence why I disagree with the inclusion of it in the current assets.
Sorry but none of the examples that you have used have relevance in this situation. In fact the bad debt provision actually proves mine in that a bad debt provision is a negative in current assets whereas the provision that has been entered in the Lendy accounts is entered below net current assets.
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toffeeboy
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Post by toffeeboy on Oct 26, 2016 16:17:54 GMT
There isn't a debtor though, there isn't a debtor until the loan is repaid. If you are entering a debtor saying this money is due back then you can't at the same time say we are providing for the loan not being repaid. The money is being paid as a provision which is why it is entered into P&L, to then add another journal from current assets to liability provision is removing the fact is provision from the balance sheet and making it a provision for liability which is why I am saying it is manipulating the current assets in the accounts. Look at it this way:
Pay the provision fund: Debit Provision fund cost P&L Credit Bank Current Assets Journal for the money coming back: Debit Debtor from LPRL Current Assets Credit Provision for Liabilities Provision for liabilities
The net effect on the current assets is zero so whilst they have included it in the accounts they have then manipulated the current assets by moving the credit to provision for liabilities therefore not accounting for it within the current assets even though as they state the money has been paid out of the bank (current assets). The simple second journal changes their net current assets from 282k to 1475k, slight difference and in my view an in correct one as they aren't owed that money until the loans have repaid.
: my initial thoughts was similar to your's, ie that a net position be shown with no grossing up of debtors and provisions on the balance sheet. However, on further reflection, I believe it is appropriate to show the gross values on the balance sheet rather than just netting the balances because as it more fairly reflect the underlying transactions. It is useful to separate the two related, but different transactions being posted: 1. A charge to the P&L has been made to account for the like liability that will be incurred in event that the company covers some of the losses on loans made. This is not a legal liability as Lendy Ltd has no legal contractual obligation to pay, but it is a constructive obligation. Therefore it is appropriate to classify the liability under charges and provisions on the balance sheet and such treatment is required under UK GAAP (the full stat accounts should show all gross movements in the provision, ie charges against and payments made). Entries Dr P&L (P&L), Cr Provision & charges (BS). 2. Lendy Ltd has effectively made a cash prepayment to the provision fund entity (assuming this is the case). This amounts is a effectively a deposit against payments that may be made by the provision fund in the future (within one year). This results in Dr Debtors (BS), Cr Cash (BS). Until any losses are actually claimed, the debtor clearly represents the amounts owed to Lendy Ltd and such not be netted against future charges against this amount. I think it would be misleading just to net-off the debtor with the provision fund (as well as against UK GAAP). The value of prepayment is not in question, the value of future obligated losses are and are recorded as such in provisions for charges. It is unfortunate that this treatment does inflate net current assets, but is more a function that charges for provisions and liabilities are categorised as non-current irrespective of the expected timing of their crystallisation. That makes sense Nick and explains it a different way to the way that I was thinking of the postings in the accounts. I was thinking of the four entries split differently.
I wasn't aware that provisions and liabilities are categorised as non current though, as you say that does in this case allow the net current assets to be inflated.
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nick
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Post by nick on Nov 7, 2016 10:16:45 GMT
savingstream: I note that Lendy Provision Reserve Ltd's accounts are now 17 days overdue according to CH. Hopefully it is just another CH error, but it would be comforting to see the provision fund cash on the balance sheet of this entity.........
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ilmoro
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Post by ilmoro on Nov 9, 2016 22:29:12 GMT
LPR Ltd accounts now on CH for your viewing pleasure
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nick
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Post by nick on Nov 10, 2016 9:43:35 GMT
Its good to finally see the £1.3m sitting as cash on LPR Ltd's balance sheet.
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mikes1531
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Post by mikes1531 on Nov 10, 2016 18:53:32 GMT
Its good to finally see the £1.3m sitting as cash on LPR Ltd's balance sheet. Yes. Now if savingstream would just confirm that the money is in a client account, and therefore a bit safer in the event of a platform problem, we'd be in business!
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nick
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Post by nick on Nov 10, 2016 23:15:16 GMT
Its good to finally see the £1.3m sitting as cash on LPR Ltd's balance sheet. Yes. Now if savingstream would just confirm that the money is in a client account, and therefore a bit safer in the event of a platform problem, we'd be in business! I can't see how it could ever be in a "client account", its not client money nor held on trust. As the provision fund is purely discretionary and there is no legal obligation to underwrite losses, if Lendy Ltd were to go into administration/liquidation the administrator/liquidation would have a claim on LPR for the credit balance owed. So the current structure does not give much comfort that the provision would be honoured in the event of platform failure, but at least demonstrates their intent by segregating the funds even if they ultimately can have recourse to these funds. It would have been far better (for us) if the provision fund had been set-up as a trust so that once funds are received they could not be clawed back and would be held solely for the benefit of investors.
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