BIM52555 - Check traders: computation of profits

Generally, the preferable basis of computation of profits is one in which:

  1. the full amount of the service charge is brought to account when a check is issued, and
  2. discount is brought to account at the time a check, or part of a check is used by a customer, or, if this would give rise to practical difficulties, at the time the shopkeeper normally renders his statement to the check trader, and
  3. where instalments are collected by agents, as described in BIM52551, you should allow a deduction for commission which will be payable on outstanding instalments (reduced by any allowance for bad or doubtful debts) at the accounting date. (You should not admit any other deduction for future collection costs).

Items (a), (b) and (c) must all be adopted for the basis of computation to be acceptable.

Unless the trader wishes to change to the basis described in the first sub-paragraph above, there is no need to disturb other long-standing methods of computation (for example, where the service charge is spread over the period of payment and no deduction is made for agents’ commission on outstanding instalments).

Where the basis of computation is changed, you should make adjustments to ensure that the new basis is applied consistently for the year of change, with opening balances adjusted on the same basis as closing balances. For example, where a claim is made for the first time for a deduction in respect of agents’ commission on instalments outstanding at the end of the trading year, account should be taken, on a similar basis, of the amount of such commission at the end of the previous year.

For further guidance on this point, see BIM34000 onwards