Accounting conventions for sinking funds

  UncleP 21:54 11 Feb 2008

I'm assisting a friend, who has become the Treasurer of a local Sports Club, to prepare the usual end-of-year Statement for its AGM. The club accounts basically consist of a general account, which more or less repeats yearly, and a sinking fund for the replacement every ten years or so of the all-weather pitches.

We're looking for a source of advice and instructions on the layout and conventions which apply in such a case. It's likely that it will only be seen by the club members, but we would prefer to get it right.

(My apologies - I know this isn't strictly business, but someone with business experience is much more likely to know the answer.)

  Forum Editor 17:34 13 Feb 2008

with the end of year statement? It's not entirely clear from your initial post.

If you are, I can tell you that it should simply be a written statement - usually by the chair of the club - outlining the events of the past year (good and bad), and anything else he/she might want to say. It should include a section about finances, but a textual explanation of the state of the club's finances is sufficient, unless you want to attach a separate document which sets out the situation more formally.

  UncleP 12:21 14 Feb 2008

Sorry, I should have been more explicit. The 'Statement' is a Statement of Accounts, presented by the Treasurer to accompany his verbal (and printed) report on the financial events and state of the Club. It usually consists of an Income/Expenditure list and a Balance Sheet for the year, duly audited of course.

The question concerns the manner and the degree to which the sinking fund can be separated from the transactions of the general account, which are reasonably consistent from year to year, and which are used to detect trends eg from changes in membership.

The sinking fund is financed mostly by an annual transfer from the general account to a formula which allows (to some extent) for inflation. The expenditure from the fund is very variable - high in some years, negligible in others - which confuses the trend analysis if not filtered out.

I've looked at accounting standards from various organisations, but found that either their rules were too general to be of much help or were clearly designed with the needs and practice of their industry or organisation in mind. In addition, the Treasurer is limited to one A4 page for the figures and one for the report text, but this doesn't appear to be too much of a problem.

  Forum Editor 17:55 14 Feb 2008

clearly indicates the amount which has been transferred to the sinking fund, and then separately indicates the reciepts and expenditure to and from the sinking fund you can please yourself.

The idea is to allow the members to see what the club's income and expenditure has been for the year, and the transfer to the sinking fund is expenditure as far as the financial accounting is concerned - it's a retention against future liabilities.

Clarity is the key, and as you say, there's an audited balance sheet in any case.

  UncleP 22:22 14 Feb 2008

Yes, that agrees pretty well with how I felt about it. The problem was, as you might have guessed, was that there were a couple of members with different views, and my Treasurer friend didn't want to offend anyone or cause an argument. One did not want the transfer recorded to imply an expenditure, with the result that the apparent profit was much higher than it should have been. The other did not want the transfer appearing in the accounts at all, on the grounds that it was a purely internal transaction.

I'll have a quiet word with the Chairman and explain the situation. He is very fair and has run the meetings I've been to very effectively. Everyone will get their say, but I'm sure that common sense will prevail.

Many thanks for your comments.

  Forum Editor 11:49 16 Feb 2008

is that commonsense doesn't always prevail - there are usually some members like the ones you mention.

The key is really transparency, isn't it? Provided the transfer is visible at some stage, and it's obvious that it is a retention against potential liabilities it will be hard for your members to find fault.

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