Mainstay defends accounting plan

Press, 3 April 1987, Page 8

Mainstay defends accounting plan

Mainstay Properties, Ltd, would stick to its planned way of accounting for the sale of the Farmers’ Trading Company building in Christchurch, in spite of being accused of creative accounting, said Mainstay’s chief executive, Mr David Spence, yesterday. The New Zealand. Society of Accountants’ research director, Dr Tony van Zijl, had said last week that Mainstay’s proposed treatment of the proceeds of the sale was nothing but "creative accounting.” Mr Spence said that if ' creative accounting meant ■ exaggerating profits then the allegation was incorrect. The company would ensure that gains from the FTC sale or any other were hot recorded as profit either prematurely or in an exaggerated manner. "Mainstay has chosen to account for the deferred settlement transaction by

simple apportionment, as opposed to discounting procedures and imputed interest,” he said. “Both methods give rise to deferred profit. It is our view that the method chosen has the advantage of simplicity and can be readily explained to all shareholders and other interested parties. If the two methods produced materially different. results, the company would disclose the differences, Mr Spence said. Thd directors of Mainstay announced in the annual report issued -last month that they had decided to apportion the realised profit from the FTC sale from 1987 to 1989. At the end of 1987 profits not taken into account would be transferred to a deferred profit provision. These would be included in the' profit statements for 1988 and 1989. The directors said that although the accounting method did not comply with

the society’s standards they believed that the profit was not "earned” until the deferred settlements on the sale had been paid — when Mainstay could obtain the benefits of the reinvested "resources.” Mainstay bought the property from Bunting and Company, Ltd, for $4.1 million, and sold it to Chase Corporation, Ltd, in January for $21.2M as a cash sale. The annual report said that the settlement for August 1987, was that more than 50 per cent be paid this year, and that the remaining money be paid in equal instalments during 1988 and 1989. There was a gain of SB.2M over book value still to be recognised, the report said. The society had said that the next annual report of Mainstay was likely to be tagged by the company’s auditors because of the proposed treatment of the sale.