A technical specialist has stipulated advisers and their SMSF clients must be clear about how they should account for unit trust distributions to a fund to ensure the relevant financial statements reflect the correct value of these types of holdings.
To this end, Accurium head of SMSF education Mark Ellem stressed practitioners and their clients need to understand if the financial statements of the fund should be prepared on a cash or entitlement basis.
“[You need to know] how the trust distributions are recognised. Are they recognised on an entitlement basis where you are going to have a year-end distribution for those managed funds, that June quarter distribution, recorded as an amount owing? It might not be received until after 30 June, but are we going to recognise it in the year in which it is in respect of?” Ellem asked participants of a recent technical webinar.
“Or do the notes [to the accounts] say that trust distributions are recognised as received? Either way [you have to be certain as to how] you’re accounting for them.”
He pointed out if trust distributions are to be recorded when they are received, then there should be no entry in the fund’s accounts at 30 June for these items.
According to Ellem, the unit price of those trust distributions play a crucial role in the accuracy of the SMSF’s accounts as well.
“If you’ve taken the entitlement basis, so you’re going to accrue the distribution owing for that last quarter as at 30 June, then you need to ensure the platform provider is [supplying you with] the post-distribution unit price rather than the pre-distribution unit price,” he noted.
“[That is] because the pre-distribution unit price will incorporate the distribution owing so if you use that unit price, and you’ve recorded the distribution as an amount owing, you will have effectively inflated the value of that combined asset, being the investment in that managed fund unit trust and the distribution owing.”
