Ltd company dealing in securities - when to recognise profit

Discussion in 'Accounts & Finance' started by philly123, Jan 12, 2019.

  1. philly123

    philly123 UKBF Contributor Free Member

    67 1
    There is a limited company whose only business is dealing in securities on a daily basis through a brokerage account. The balance of this account goes up or down due to the nature of financial trading. The company makes cash withdrawals from the brokerage account into its bank account as and when needed.
    When should the company recognise the profit arising in the brokerage account? Is it acceptable to do it only once a year at the beginning of the financial year?
     
    Posted: Jan 12, 2019 By: philly123 Member since: Jun 19, 2012
    #1
  2. Financial-Modeller

    Financial-Modeller UKBF Regular Full Member

    254 71
    With a huge caveat that this may not be current, the following approach was deemed acceptable a few years ago:
    • Individual stocks / shares and physical deliveries of commodities needed to be accounted for individually.
    • Cash-settled securities (futures, options etc) could be accounted for in aggregate, so end-of-period account balance less beginning-of-period account balance (plus withdrawals during the period in your case) was the amount entered in the P&L.
    Hopefully one of the accountants can confirm if this remains the current approach or not.
     
    Posted: Jan 14, 2019 By: Financial-Modeller Member since: Jul 3, 2012
    #2
  3. philly123

    philly123 UKBF Contributor Free Member

    67 1
    Yes, but the question is: when exactly should the end of the period be? Last day of company's financial year?
     
    Posted: Jan 14, 2019 By: philly123 Member since: Jun 19, 2012
    #3
  4. Financial-Modeller

    Financial-Modeller UKBF Regular Full Member

    254 71
    Yes. Unless you can think of any reason to use any other day!
     
    Posted: Jan 14, 2019 By: Financial-Modeller Member since: Jul 3, 2012
    #4
  5. philly123

    philly123 UKBF Contributor Free Member

    67 1
    Yes. If we assume the profits at the end of the year are usually higher than at the beginning then I would choose the first day of the financial year to realise profit for that whole year. Is that acceptable?
     
    Posted: Jan 14, 2019 By: philly123 Member since: Jun 19, 2012
    #5
  6. Financial-Modeller

    Financial-Modeller UKBF Regular Full Member

    254 71
    You're suggesting choosing your accounting period to be between whichever two dates minimise your Corporation Tax bill!

    Good luck explaining that to HMRC!!
     
    Posted: Jan 15, 2019 By: Financial-Modeller Member since: Jul 3, 2012
    #6
  7. MJ Holohan

    MJ Holohan UKBF Contributor Full Member

    51 10
    Your profit for corporation tax in any typical year should be over 12 months
     
    Posted: Jan 16, 2019 By: MJ Holohan Member since: Dec 27, 2018
    #7
  8. philly123

    philly123 UKBF Contributor Free Member

    67 1
    Do I have to create any journal entries during the year or just raise one internal sales invoice on the last day of the accounting period?
     
    Posted: Jan 22, 2019 By: philly123 Member since: Jun 19, 2012
    #8