Question

A company wants to buy coal deposits but does not want the financing for the purchase to be reported on its financial statements. The company therefore establishes a trust to acquire the coal deposits. The company agrees to buy the coal over a certain period of time at specified prices. The trust is able to finance the coal purchase and pay off the loan as it is paid by the company for the minerals. How should this transaction be reported?

Answer 1

Please transaction or this setting up of a trust cannot be reported in the financial statements of the company.

The main reason of the company for establishing a trust is not to report any information about the purchase of poles find the company.

All the information related to this trust should be e reported through financial statements to the Saturday authorities as an individual trust there is no relationship between the company and the trust.

For good relationship between company and trust directors of the company can be the trustees of the newly established trust.

Primary directors of the company has to establish a trust and the director has to observe that there is no evidence to be available for the outside of the organisation to prove that there is internal relationship between company and that newly established trust.

After establishing as per above plan the trust can by the coal deposit and after that pick and sell those coal to the company.

Finance for the trust can be get from banks and financial institutions as loans and advances on the guarantee given by the trustees of the trust.

Without financial resources trust can be e run its operating activities does buying and selling the coal.

And then after as per plan coal has to be sold to the company and get financial proceedings from the company and repay the loan to the banks and financial institutions.

And all these establishing of trust, securing loans and advances from banks and financial institutions, purchasing of coal and selling of coal to the company are to be recorded in the financial statements of trust only but not in the company.

These are all the information required to solve the given question.

I hope, all the above given information and explanations are useful and helpful to you.

Thank you.