188体育

NOTES

1) Adopted Gross Receipts: Local and industry knowledge indicate that the year end 3/93 was an exceptionally poor year and that looking forward from the AVD turnover would be expected to improve. A fairly cautious estimate has been made, with turnover not expected to reach the 1992 level. Adopted expenses should be estimated bearing in mind the expected increase in business.

2) Gross Profit: Estimated having regard to the actual gross profit margins.

3) Wages etc: An increase has been assumed, both in line with the expected increase in business and increased costs. As a percentage of turnover this is in line with previous years.

4) Travel/Motor: An allowance has been made in the adopted figure for private expenses, which should be deducted.

5) Professional fees: The 1991 expenses related mainly to a one-off item and should be ignored.

6) Rates: These are treated as any other working expense, and an appropriate figure estimated for the forthcoming twelve month period.

7) Bank charges: The basic cost of running an account should be allowed, although any charges for overdrafts or loans are not allowable (see also Note 11).

8) Equipment hire: This is an allowable expense, although the extent and type of equipment hired must be taken into account when making the allowance for renewal of tenant鈥檚 assets and estimating tenant鈥檚 capital. It would be double counting to allow the hire charges and also to include the items in tenant鈥檚 capital and make an allowance for their depreciation.

9) Total expenses: As a proportion of gross receipts the figures adopted for expenditure appear reasonable.

10) Net profit: This is shown before depreciation, loan interest and other exceptional items to enable a true comparison to be made between the actual figures in the accounts and the adopted net profit.

These other expenses are shown below so as to demonstrate the reconciliation of the figures with the net profit shown in the accounts. Any other items to be excluded from the adopted expenses for rating are better shown after this 鈥淣et Profit excluding鈥�.鈥� line - an example is any ground rent paid.

11) Loan interest: This is not allowable, whether in relation to the purchase of the property or of non-rateable assets. Similarly, charges in respect of bank overdrafts are not allowable.

12) Directors鈥� remuneration: The hypothetical tenant of this hereditament is likely to be an independent operator/couple and therefore director鈥檚 remuneration should normally be reflected solely in the tenant鈥檚 share.

In some instances it may be appropriate to allow a fair salary as a working expense to reflect the tenant鈥檚 managerial input. In such cases this allowance must be taken into account when deciding upon the appropriate tenant鈥檚 share.

13) Profit/loss on sale of fixed assets: This is an accounting figure being the difference between the book value and sale price of any assets sold. It is not an allowable working expense for rating.

14) Depreciation: These are the actual depreciation figures and may include depreciation to rateable as well as non-rateable items. Any depreciation to rateable items must be excluded from the renewal fund allowance for rating (see Note 16 below).

15) Head office expenses: The hypothetical tenant of this property is likely to be an independent operator/couple and therefore in this case an allowance for head office expenses should not be made.

16) Renewal fund for replacement of non-rateable assets (depreciation of tenant鈥檚 assets): Balance sheet information, where available, may assist in estimating the present replacement value of the tenant鈥檚 assets. Where some assets are leased, if the rental payment has been allowed as a working expense a depreciation allowance should not be made in respect of these assets and they should be excluded from tenant鈥檚 capital. In the example the allowance made may be on the high side in view of the actual charge (which may include rateable items) but it appears a number of assets may be fully depreciated and due for renewal. In practice further information would be required in respect of the depreciated items, plans for refurbishment etc.

17) Divisible balance: This needs to cover tenant鈥檚 share and rent. In the real world in this example it would at least have to cover directors鈥� remuneration and loan interest which it would do for each of the three years.

18) Tenant鈥檚 share: Working capital has been estimated at two weeks鈥� sales, and the present replacement value of tenant鈥檚 assets is the same as adopted for the renewal fund calculation (see Note 16 above).

The tenant鈥檚 share has been estimated in two parts, firstly taking interest on tenant鈥檚 capital, and secondly making an allowance for profit and risk (as a percentage of the remainder of the divisible balance once interest on tenant鈥檚 capital has been deducted).

The total tenant鈥檚 share analyses to around 53% of the divisible balance or 22% of tenant鈥檚 capital - taking everything into consideration in this particular case this appears a reasonable return to allow to the tenant.