Do you read your Financial Statements?

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Do you read your Financial Statements?

Hamish Pryde • February 13, 2013

I recently had an example of some actions that astounded me somewhat.

The instance came about that an client had duly dropped in her records for processing each year for a number of years, and when the Financial Statements were prepared each year, she simply signed the Tax Return where indicated, and thought all was well. She never wanted to come in to discuss the accounts.

Not all was well when it came to light that she had sold her business and wanted to end the necessity to file a Business Tax Return with the Inland Revenue Department.

Upon ceasing the business, all assets must be accounted for, whether they are sold or retained. The largest asset was the land and buildings, from which the shop had operated.

Now the issue with buildings is that we get to claim a non-cash expense, essentially an allowance each year, in the books. Over a number of years, this depreciation accumulates to what can be a substantial figure, depending on how long the building was owned.

The problem with buildings is that they usually appreciate. Thereby when the building is sold, the written-down value of the building is such that there is depreciation recovered. This large sum of depreciation recovered is taxable, and can result in a large tax bill in the year of sale.

On topical note, the tax legislation has been changed with effect from 1 April 2011 and there is no longer a depreciation claim for buildings with a useful life of more than fifty years.

However, in this instance it came to light that the building had actually been sold a number of years earlier. Upon sitting around the table with the client and explaining the matters, the reply was "Well you do the books, and I thought it was all taken care of." It was pointed out that this is not a defence. We must remind out clients that they are responsible for the information provided, and they are responsible for the end result. We compile information based upon what they tell us, and if they do not tell us things, we are not mind readers.

I always prefer to go through the Financial Statements with our clients to make sure that they understand, and give them an option to ask any questions they may have, as this can avoid surprises of a nasty tax nature, well after the fact.

It is important to read and understand your own financial statements and tax affairs.

Hamish Pryde BBS, CA (PP)

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More & More Paper Less

By Hamish Pryde • September 11, 2024

Paper is everywhere. We spend a lot of time and money moving paperwork around. But with today’s technology it is now possible to get rid of paper entirely. Digital documents are simpler, easier to store and send, more searchable and permanent. How long does it take to post a document to somebody via the ole stamp and envelope method, that is snail mail? It is more efficient and timelier to email the document. How many times do you go to print a document at home and find that your printer has run out of ink? Why do we still hold onto printing paper documents? Sometimes it’s just because that’s what we’ve always done and let’s face it change can be difficult at first. Paper alone is cheap. But when you start paying for printers, toner, servicing and maintenance, paper starts to look more expensive. Let alone the storage cost. Paper tax records for seven years can be quite a few boxes of paper. We have embraced some paperless technology as part of a modern business practice. This includes digital signatures, digital collaboration, paperless minutes of business improvement and coaching meetings, electronic work papers and my new digital notebook which I am enjoying. We send questionnaires via email to you to gather vital information to enable us to prepare your annual financial statements. This is a PDF document. Instead of printing the questionnaires you could save the document down into a folder of your choice then edit the PDF document and return to us. How do you edit a PDF document you ask? Once you have opened the document the Adobe online editor lets you do some things for free. The online editor works in any web browser and lets you add text, sticky notes and highlights. Click on the fill & sign button to the right of the document, then in the top toolbar click Iab text button. You can add text directly on the PDF document. Have a try next time you have a PDF document open. Xero and Farm Focus users can attach invoices directly to the transaction loaded into Xero. Then if you are looking at the rates expense in the profit and loss account or farm working account, you can drill down into the rates code and see the transactions. Then attached to each transaction is the rates invoice if you use this great functionality. All invoices can now be stored in the cloud. So why paperless? Productivity - electronic documents are instantly and simultaneously available to everyone who needs them. Reduce waiting times with less risk of loss or damage. Cost savings - you will save money on printing, postage and associated costs. You could pay less rent because you won’t need all that space for your files. Security - electronic documents are more secure than printed ones. Digital records can be password protected and rendered unreadable through encryption. Printed documents are only as secure as their proximity to a copy machine. Reduced Clutter - paperwork on desks and shelves are not only untidy it’s inefficient too. The organisation of digital files is simpler and your office will look much neater. That will help you clear your mind to focus on your business. Environmentally friendly - less printing means fewer trees cut down for pulp and less energy used to make and transport paper. Disaster recovery - if there is a fire or flood, recovery from the backup is much easier with digital storage them with paper. There are great help articles available in Xero or Farm Focus if you are not attaching invoices to payments already. To find out how click on the links below: If you would like to explore ways you can go paperless we can help.