Accounting 1 Chapter 1 Answers

[Gabelo Camphire]

Theaccruals basis of accounting means that to calculate theprofit for the period, we must include all the income and expenditurerelating to the period, whether or not the cash has been received orpaid or an invoice received.

The accruals concept is identified as an important accountingconcept by IAS 1 Presentation of Financial Statements. The concept isthat income and expenses should be matched together and dealt with inthe income statement for the period to which they relate, regardless ofthe period in which the cash was actually received or paid. Thereforeall of the expenses involved in making the sales for a period should bematched with the sales income and dealt with in the period in which thesales themselves are accounted for.

The sales revenue for an accounting period is included in theincome statement when the sales are made. This means that, when a saleis made on credit, it is recognised in the income statement when theagreement is made and the invoice is sent to the customer rather thanwaiting until the cash for the sale is received. This is done by settingup a receivable in the statement of financial position for the amountof cash that is due from the sale (debit receivables and credit salesrevenue).

Similarly purchases are matched to the period in which they weremade by accounting for all credit purchases when they took place andsetting up a payable in the statement of financial position for theamount due (debit purchases and credit payables).

The major cost involved in making sales in a period is the actualcost of the goods that are being sold. As we saw in a previous chapter,we need to adjust for opening and closing inventory to ensure that thesales made in the period are matched with the actual costs of thosegoods. Any goods unsold are carried forward to the next period so thatthey are accounted for when they are actually sold.

The expenses of the period that the business has incurred inmaking its sales, such as rent, electricity and telephone, must also bematched with the sales for the period. This means that the actualexpense incurred in the period should be included in the incomestatement rather than simply the amount of the expense that has beenpaid in cash.

In this case, it is necessary to remove the income not relating tothe year from the income statement and create a corresponding liabilityin the statement of financial position (called prepaid income):

Branch/Disregarded Entity

Exempt Beneficial Owners

Expanded Affiliated Groups

FATCA Certifications

FFI/EAG Changes

Financial Institutions

General Compliance

IGA Registration

Conversions to Model 1 IGA and FFI Agreement Renewals

NFFEs

Registration Update

Reporting

Responsible Officers and Points of Contact

Request for Additional Extension of Time to File Form 8966 for Tax Year 2014

Request for Waiver from Filing Form 8966 Electronically for Tax Year 2014

Sponsoring/Sponsored Entities

In general, a branch (as defined in Treas. Reg. 1.1471-4(e)(2)(ii)) must be registered as a branch of its owner and not as a separate entity. Thus, the branch will be registered by the FI of which the branch is a part (including an appropriate lead FI or Sponsoring Entity) when the FI completes Part 1 of its own FATCA registration. The online registration user guide provides further instructions on how to register branches. In general, a branch is a unit, business, or office of an FFI that is treated as a branch under the regulatory regime of a country or is otherwise regulated under the laws of such country as separate from other offices, units, or branches of the FI.

A branch (including a DE) that is in a Model 2 IGA jurisdiction, or a jurisdiction without an IGA, must be registered as a branch of its owner (rather than as a separate entity). As such, the branch will be registered by the FI of which the branch is a part (including an appropriate Lead FI or Sponsoring Entity) when that FI completes Part 1 of its own FATCA registration. The branch will not have a separate registration account, but will be assigned a separate GIIN, if eligible. When the FI completes its FATCA registration and registers its branches by answering Questions 7, 8, and 9, GIINs will be assigned with respect to the registered branches, where appropriate. The online registration user guide provides further instructions on how to register branches. A separate GIIN will be issued to the FI to identify each jurisdiction where it maintains a branch that is participating or registered deemed-compliant.

A withholding agent that knows or has reason to know that a Form W-8BEN-E has been provided by a branch of an FI that has incorrectly registered as a separate entity may rely on such form (if otherwise valid) for payments made by the end of the 2015 calendar year. Thus, the withholding agent should not withhold on payments to the branch made before such date solely because the branch has incorrectly registered on the IRS Portal.

You will generally be exempt from FATCA Registration and withholding if you meet the requirements to be treated as an exempt beneficial owner (e.g. as a foreign central bank of issue described in Treas. Reg. 1.1471-6(d), as a controlled entity of a foreign government under Treas. Reg. 1.1471-6(b)(2), or as an entity treated as either of the foregoing under an applicable IGA). A withholding agent is not required to withhold on a withholdable payment to the extent that the withholding agent can reliably associate the payment with documentation to determine the portion of the payment that is allocable to an exempt beneficial owner in accordance with the regulations. However, an exempt beneficial owner may be subject to withholding on payments derived from the type of commercial activity described in Treas. Reg. 1.1471-6(h).

You will be exempt from FATCA Registration and withholding if you meet the requirements to be treated as a retirement fund described in Treas. Reg. 1.1471-6(f), or under an applicable IGA. A withholding agent is not required to withhold on a withholdable payment to the extent that the withholding agent can reliably associate the payment with documentation to determine the portion of the payment that is allocable to an exempt beneficial owner (in this case, a retirement fund) in accordance with the regulations.

Yes. An EAG may organize itself into subgroups, so long as all entities with a registration requirement are registered. An FI that acts as a Compliance FI for any members of the EAG is, however, required to register each such member as would a Lead FI for such members.

Yes. A limited FFI (regardless of whether it is a member of an Expanded Affiliated Group) must identify itself to withholding agents as a nonparticipating FFI and, as a result, is subject to Chapter 4 withholding. Thus, while limited FFIs are generally required to register, they will not be issued GIINs.

The answer generally depends on your FATCA classification. Not all entities are required to submit either or both types of certifications. The table below provides a general overview of the types of entities that are required to certify and which certification(s) they must submit. For more specific guidance, see Section 8 of Revenue Procedure 2017-16, the Treasury regulations, or an applicable intergovernmental agreement (IGA).

Note: The registration system will suggest the certification(s) for an entity based on its FATCA classification in question 4 of the registration system. Therefore, even entities that do not have a certification requirement should update their FATCA classification to avoid inapplicable certification-related notices in the future.

If you are the RO of a compliance FI, sponsoring entity, trustee of a trustee-documented trust, or lead of an expanded affiliated group (EAG) of registered deemed-compliant FFIs that is certifying collectively on behalf of the EAG, you must determine on behalf of which entities you will be certifying and ensure that those entities are properly registered (to the extent applicable) for you to be able to certify on behalf of them.

All certifications will ask the responsible officer (RO) to review and update (if necessary) his or her identifying information, complete a series of introductory questions, select the applicable certification option the RO is submitting, and answer a series of certification questions.

The FATCA Online Registration User Guide will be updated to provide step-by-step instructions for navigating the certifications. Refer to the Draft FATCA Certifications for a preview of the questions that will be asked as part of each certification.

Most entities with a certification link on their home page will be required to complete the certification. The third option may apply, for example, when a sponsoring entity is not required to certify because it only has sponsored FFIs subject to a Model 1 IGA jurisdiction, or, with respect to the COPA, the sponsoring entity has only late-joining sponsored FFIs or FFIs that have already submitted their required COPA. Therefore, it is anticipated that most filers will select one of the first two options. Also note that, by indicating that you are unable to complete the certification (second option), you are indicating that the entity is not compliant with its FATCA obligations. ROs are encouraged to utilize all of the time provided to complete the certification, rather than not certify because they have not completed certain necessary activities (for example, a periodic review).

A certification cannot be edited once it is submitted. Prior to the deadline for submitting a certification (COPA or periodic certification), you may submit additional certifications with the corrected information by taking the same steps for completing the original certification (that is, click on the appropriate link on your home page and complete the questions). You will need to complete the entire certification again. That is, you cannot selectively change a particular response (although certain responses will be prepopulated based on your prior certification; these prepopulated responses can be edited). Before the certification is submitted, a notification will ask you whether you would like to submit an additional certification. Generally, submitting an additional COPA or periodic certification will supersede the previously submitted COPA or periodic certification. However, all submitted certifications are saved in the registration system.

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