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Current legislation does not state how soon the annual statement of accounts for service charges should be produced and issued to leaseholders after the year-end although there may be a date in the leases or a statement that the information should be produced ‘as soon as practical’.

If there is no such date or statement then ‘best practice’ is for them to be issued 6 months after the year-end.

PAGE 1: ACCOUNTANTS REPORT

Page 1 of the accounts will show an Accountants Report for the relevant year-end. For our block it states that an audit will not be required under the terms of our lease and the report is made to our managing agent to be issued with the service charge accounts. No responsibility is accepted or assumed by the accountants to anyone other than the managing agents for their work in the report.

The basis of the report will have been carried out with regard to Technical Release 03/11 Residential Service Charge Accounts. In summary they obtained the service charge accounts from the managing agent and checked whether the figures were extracted correctly from the accounting records maintained on behalf of the freeholder. They performed a sample check to see whether the entries in the accounting records were supported by receipts, other documentation or other information they inspected. They also checked whether the balance of the  service charge monies for the property (and shown on the balance sheet) is included with the total client monies held and agreed or reconciled to the bank statements for the accounts in which the funds are held.

It will go on to state that because the procedures don’t constitute an audit or a review in accordance with the International Standards on Auditing (UK and Ireland) or the International Standards on Review Engagements they do not express any assurance on the service charge accounts.

If they had performed either an audit or a review then other matters may have come to their attention and been reported accordingly.

PAGE 2: STATEMENT OF INCOME AND EXPENDITURE

The Statement of Income and Expenditure shows how much money came in against what was spent and is broken down as follows:

Income: This is the budget set for the financial year in question and shows the following:

  1. Service Charge Receivable: This represents amounts demanded for the period in question;
  2. Interest on Late Paid Service Charges;
  3. Bank Interest Receivable.

*These figures are added together to give Total Income*

Followed by Service Charge Expenditure, Utilities & Insurance

  1. Water – Communal
  2. Electricity
  3. Buildings Insurance
  4. Directors & Officers Insurance
  5. Insurance Valuation

*These figures are added together*

Followed by Contracts Maintenance & Services

  1. Equipment Telephone Line
  2. Reactive Refuse Removal
  3. Drainage Maintenance
  4. Landscape Maintenance
  5. General Repairs & Maintenance
  6. CCTV System
  7. Fire/Emergency Lighting

*These figures are added together*

Followed by Fees

  1. Debt Collection Costs
  2. Management Fee
  3. Administration Charges
  4. Accountancy Fee
  5. Fire Risk Assessment
  6. Health & Safety Assessment

*These figures are added together*

Followed by Additional & Sundry Costs

  1. Out of Hours
  2. Bank Charges

*These figures are added together*

The total figure from each of these groups are then added together to give the TOTAL EXPENDITURE.

The Total Income is then subtracted from the Total Expenditure to provide the net surplus/deficit for the year, in other words either an overspend or an underspend, more of which can be read here.

If any surplus figure is credited back to each leaseholder then it is not added to the Balance Carried Forward figure.

Income

  1. Sinking Fund Receivable: This is always the same figure each year.

Sinking Fund Expenditure

  1. Repairs & Maintenance: This is subtracted from the Sinking Fund Income Receivable to give the Net Increase/Decrease for the Year.

Net (Decrease) For The Year

  1. Balance Brought Forward: This is the previous years Net Increase/Decrease for the Year and the Balance Carried Forward figure added together.
  2. Balance Carried Forward: This is the Net Increase for the current Year subtracted from the above figure.

PAGE 3: BALANCE SHEET

A balance sheet is only a snapshot of a business’ financial position on one particular day. It is called a balance sheet because there is a debit entry and a credit entry for everything (but one entry may be to the profit and loss account), so the total value of the assets is always the same value as the total of the liabilities.

The balance sheet will show:

  1. How solvent the business is,
  2. How liquid its assets are (i.e. how much is in the form of cash or can be easily converted into cash such as stocks and shares)
  3. How the business is financed
  4. How much capital is being used. The individual figures can change dramatically in a short space of time but the total net assets (assets less liabilities) would only do so if the business was making large profits or losses. Any profits not paid out as dividends are shown in the retained profit column. 

The individual figures can change dramatically in a short space of time but the total net assets (assets less liabilities) would only change dramatically if the business was making large profits or losses.

What the balance sheet doesn’t do is show day-to-day transactions or the current profitability of the business. However, many of its figures relate to (or are affected by) Profit and Loss transactions on a given date.

Contents

The balance sheet is comprised of the following:

Current Assets:
The assets of a company are recorded as debits (a good thing) which are expected to be converted into cash, inventory and accounts receivable within 12 months of the balance sheet date. They are also termed liquid assets but whatever they are called their value can fluctuate from day to day. They show the following:

  1. Bank Balance
  2. Service Charge Debtors (money owed by leaseholders)
  3. Other Debtors (money owed from elsewhere such as trade debtors. These are suppliers that give a grace period in which to pay after services have been provided). The amount that goes on the balance sheet for trade debtors is the sum of all unpaid customer invoices at that point in time. A provision is usually made in the accounts of a firm to to offset uncontrollable accounts receivable (bad debts) as losses.
  4. Prepayments: These occur when a debt or installment payment is made before its official due date. It can be for the entire balance or for any upcoming payment that is paid in advance of the date for which the borrower is contractually required to pay it.

* These figures are added together*

Current Liabilities

  1. Trade Creditors
  2. Service Charges Paid in Advance
  3. Short term loans  from an RMC, overdrafts or other finance which won’t appear on the Profit and Loss sheet
  4. Other Creditors
  5. Accruals

*These are all added together with the Current Liabilities subtracted from the Current Assets*

Reserves

Sinking Fund

Income and Expenditure Account

Note: The balance sheet should also include any statements and signatures by the landlord or agent required by the lease. If there is no such requirement, it is good practice for the landlord or agent, (as applicable), to sign the balance sheet to confirm approval of the accounts. There is no statutory requirement as to the form or content of the balance sheet.

 

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