G3 Prepayments
Based on the information provided by the client in their annual information, use this workpaper to confirm the calculate the necessary adjustments for prepayments.
The worksheet has been split based on the differing tax treatments available for entities that qualify for concessional treatment. Broadly, a small and medium business entity has the option of fully expensing a prepaid expense that is 12 months or less, even if some of that expense accrues after year end.
1. Answer the questions relating to whether the client is a small business entity or a medium business entity.
2. Default accounting treatment allows you to select the way in which the prepayment has been allocated by the bookkeeper. The options are ‘Adjustment already made’ for when a prepayment has been journalled in by the bookkeeper, ‘Asset created’ for when the payments are coded directly to the balance sheet, and ‘All expensed’ for when the bookkeeper has coded the expenses directly to the profit and loss. By selecting a default accounting treatment, every row in column N is completed. You have the option of manually adjusting this for payments that have different treatment in the accounts prior to adjustment.
3. From the client information, enter the value of the prepaid expense along with the service period.
4. Enter in the account code from where the initial payment has been made, so an automatic journal can be created.
5. In Column S, confirm whether the expenditure is excluded from the prepayment rules.
6. In Column AD, confirm whether the SBE or MBE is electing to apportion the prepaid expense across multiple income tax years.
7. Based on your answers, the worksheet will calculate any accounting adjustment for prepayments, as well as any taxation adjustments required in the Tax reconciliation. If there are tax adjustments, when an accounting expense is different from the tax treatment, the relevant area of the tax reconciliation (at A1) will pre-populate.
8. Create automatic journal to update general ledger if required.
