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Boring bookkeeping question

Discussion in 'Accounting, Tax & Legal' started by johnnyb, 1st Jun, 2007.

  1. johnnyb

    johnnyb Well-Known Member

    Joined:
    16th Aug, 2005
    Posts:
    190
    Location:
    Hobart
    Hi All,

    I'm afraid most people will find this topic a bit dull (no offence to accountants :)).

    I'm trying to put together a list of assets and liabilities before meeting a solicitor to prepare our wills. I'm getting stuck on dealing with loans and units in our hybrid trust.

    As an example, say we purchased a $100K property using the hybrid trust. Assume we get a loan for $80K, and use $20K from a LOC. So on paper we purchase $100K of units in the trust, and the trust then buys the property. I don't understand how to record all of this as balance sheet items for myself and the trust. My attempt is:

    Johnnyb
    Assets:
    Units in Trust $100K
    Liabilities:
    Mortgage $80K
    LOC $20K

    Trust
    Assets:
    Property $100K
    Liabilities:
    Nil

    Does that make sense? I'm not sure if the units issued by the trust are seen as a liabilities.

    The thing that I really don't understand is if I look at the total position it looks like there is $200K of assets in existence. This doesn't make any sense to me, so either my understanding of bookkeeping is dodgy (very likely), or looking at a total position across different entities is not a valid thing to do.

    Can anyone shed some light, or point me to some bookkeeping 101 information?

    Thanks.

    John.
     
  2. DaveA

    DaveA Well-Known Member

    Joined:
    19th Feb, 2007
    Posts:
    617
    Location:
    Sydney, NSW

    accounting 101 teaches you Assets= Liabiliites + Owners Equity

    so your personal accounts is right but your trust should be as follows

    Trust
    Assets:
    Property $100K
    Liabilities:
    Nil
    Issued Equity
    Units on Issue $100k (100k of $1 units)

    now if your trust has had an asset revaluation since you bought the units it would be
    Trust
    Assets:
    Property $150K
    Liabilities:
    Nil
    Issued Equity
    Units on Issue $100k (100k of $1 units)
    Asset Revaluation Reserve $50k

    this means that ever unit is now worth $1.50 not a $1.00 which you paid for them
     
  3. MattR

    MattR Well-Known Member

    Joined:
    23rd May, 2007
    Posts:
    229
    Location:
    Sydney
    johnyb...assuming that you borrowed to buy the units then your net assets are Nil

    DR Units $100K
    CR Borrowings -$100K
    Nil Position

    For the Trust, also net Nil position
    DR Property $100K
    CR Trust Funds -$100 (or Owners Equity)
    Nil Position
     
  4. johnnyb

    johnnyb Well-Known Member

    Joined:
    16th Aug, 2005
    Posts:
    190
    Location:
    Hobart
    Thanks for that - makes more sense now. Glad I wasn't too far off.

    John.