The Pty Ltd “trustee” company (licensee) will usually have $2 or $10 assets (paid up capital). We require financial statements for both the trustee and the trust for the same reporting date. Whilst all trading is usually completed under the Trust, the trustee company is still required to provide signed financial statements to confirm its’ net asset position.
The current ratio is the combination of trust and trustee’s current assets over current liabilities, but NTA is calculated solely on trustee (Pty Ltd) net assets. If the Trust has a negative net asset position, the trustee (licensee) has to absorb that amount.
In calculating the trust’s net asset position, disallowed assets of the Minimum Financial Requirements are excluded from the calculation. Usually, the only way the trustee company can meet the NTA test is to rely upon a Deed from a director, beneficiary or associated company.
The Trust financial statements are still assessed on the MFR framework:
- Any related entity asset loans need to be confirmed as collectable;
- Any borrowing costs / intangible assets need to be deducted from net assets;
- Trade debtors need to be assessed for collectability;
- Disallowed assets as listed in the Minimum Financial Requirements need to be deducted.
As trustee for a trust, assets held by a trustee under trust arrangements are excluded when calculating the NTA position. However, any liabilities incurred by the Licensee as a trustee for a trust must be included in the liabilities. If, however, the trustee has a recognised right of indemnity to the assets of the trust relevant to the trust liabilities incurred, then the value of the indemnity may be set off against the trust liabilities. Assets which are considered as disallowed or intangible are also to be excluded from the assets of the trust when calculating the value of the indemnity.