What reports to run when you are selling your facility
Posted by Cameron Telfer, Last modified by Cameron Telfer on 04 December 2017 12:41 PM
When a business is sold, settlement of various Balance Sheet items is generally included as part of the terms of sale. Generally, the accounts receivable, inventory, prepayments and deposits need to be calculated and apportioned.

Note: This article refers to accounting terminology; you may wish to have your accountant on hand. Cash/Accrual Methods.

The reports used to determine the amounts to be settled are based on the vendor paying the liabilities of prepaid rent and deposits held to the purchaser and receiving the value of the assets of Accounts Receivable and Inventory on Hand from the purchaser.

Typically settlement would be on an "Accruals" basis, since accounts receivable are not recognised on a cash basis. The accounting method used by the site has no real bearing on the settlement process.

Reports to use for Settlements

Recalculate Balances should be run first, to ensure all balances are up to date.

  • Customer Balances Report , printed using the date of settlement as the month end date.
  • Prepaid Rent Report, printed at the date of settlement and using the Daily Basis method.
  • Inventory Valuation Report, printed using the date of settlement as the month end date.
  • Deposits Held Report, printed on the date of settlement. Note that this this report is only accurate on the day it is printed - ie, unlike all other Storman reports you cannot print it for a date in the past.

Note: It is possible to use the Aged Receivables List Report which contains a combination of Customer Balances and Prepaid Rent, however this is not recommended.

Checklist before Printing Reports

The accuracy of reports is dependant on all data being entered. Steps that are needed to ensure accuracy of the reports include:
  • Daily Processing must be completed up to or past the day of settlement.
  • All receipts up to or past the date of settlement are entered.
  • Stock adjustments, entries and purchases have been entered.

Accounts Receivable
Use the total of the 'Closing Balance' column - being the 4th column of the Aged Receivables List Report. If the settlement provides for an adjustment to balances where they are older than a certain date (say, 90 days), then the Aged Receivables List Report should also be printed at the date of settlement and adjusted by the total of the '90 day' column. If using the Aged Receivables, deduct the 'In Credit' column from the 'Balance Owing' column to get the net amount of Receivables owing.


Prepaid Rent
This report has two monetary columns being 'Billed in Advance' and Paid in Advance'. The 'Rent in Advance' column should be used for settlement as it is calculated on the charges. The Paid in Advance column should not be used as it also takes into account the balance owing for some Customers and therefore includes amounts that are already accounted for by the Accounts Receivable settlement.


Inventory Valuation
The last two columns of this report under the heading 'Closing' show the Quantity on Hand and the Value of the Inventory on hand. As a site would generally have a physical stock take to verify these quantities we recommend this be done at settlement also. Note that the 'Value' column is either calculated on an Average Cost basis, or on the basis of First In, First Out (FIFO), meaning that Inventory is valued at the most recent cost prices.


Deposits Held
This report needs to be printed on the day after settlement, and lists the amount of deposits held for each Customer. Generally there would be no GST or tax on deposits.


Recent Data Conversions
If a business has converted from another software package, the Prepaid Rent report may not be correct during the first month of using Storman as it will take time to correctly work out the prepaid portion, once all Customers have been billed through one cycle.


Tax

All the Storman reports referred to above (except Deposits Held, where there is no tax on deposits) are including tax, so the purchaser and vendor may need to provide tax invoices to each other for the various settlement items if the settlement is including tax. In many cases however settlement may be on a tax exclusive basis so tax should be removed from the totals.

We recommend that tax advice be obtained from a qualified professional as the amounts can be significant and the penalties large where the tax is not accounted for correctly.


Data Validation
We recommend that a brief audit of each report be conducted to ensure it's accuracy. This can be done by selecting the 5 largest amounts on each report and manually checking the calculations. This is to ensure that the data has been entered correctly Into Storman.


Summary
Purchaser pays to Vendor: Total of 'Closing Balance' column of Customer Balances Report (less tax).
Vendor pays to Purchaser: Total of 'Billed in Advance' column of Prepaid Report (less tax).
Purchaser pays to Vendor: Total of 'Closing Value' column of Inventory Valuation Report (less tax).
Vendor pays to Purchaser: Total of Deposits Held Report (no tax).


Disclaimer
This information is designed to provide details of how to apportion & settle assets and liabilities at the time of sale or purchase using some of Storman's reports. This should not be taken as a recommendation as to how a sale and purchase should be settled.
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