Accounting for bank account opened by estate agent for depositing tenants rent and paying out to lanlords

[mehranmichail]

Hi, situation is as under:
We have a letting agent who has opened a dedicated bank account wherein he receives/deposit rent received from tenants and pays it to landlord after deducting his fees.
Have seen discussion on a forum on this topic. One gentleman argued that this bank account is not asset to be shown in letting agent's accounts as he basically does not own this money and is actually just intermediary between tenant and landlord.
My analysis:
1. The main criteria given for recognition of asset is control. Technically and legal the bank account is in the name of the agent and he can use money in this bank account as he likes as there is no restriction on its use as in the case of bank accounts under debt covenants. This is irrespective of his obligation to pay rent collected to the landlord.
2. Under Ias 32, cash/cash at bank is financial asset by default.
3. Not sure how to fit substance over form in this case.
In case of bank loan taken, entity is free to use loan money like to buy assets, pay liabilities etc. Can we say that in substance agent can't use money held in that bank account?
In my opinion, point 1 and 2 will make this bank account as an asset to be shown in agent balance sheet against corresponding liability.
M I right?
Feedback will be highly appreciated

[Marek Muc]

Hi,

I agree with you, point 1. makes it clear to me that the money on this bank account should be recognised as an asset of the agent.

We can consider two scenarios to explore this further:

1/ Tenants made their transfers to this bank account, but the bank goes bankrupt and the agent did not manage to transfer the money to the landlord. Does the agent still owe money to the landlord?

2/ Tenants made their transfers to this bank account, but the agent urgently needs to pay for some of his emergency expenses. Can he use the money to do that without any consent from the landlord?

M.

[mehranmichail]

Thanks marek
1. Yes the agent is obliged to pay to landlord even if the bank goes bankrupt.
2. Yes the agent can make emergency payments out of this bank account.
Do u disagree with idea that cash is asset by default under Ias 32?

[Marek Muc]

Cash is a financial asset for sure. The question here was whose asset it was. But I'm pretty sure that the agent should recognise cash assets from what you've written.

[mehranmichail]

Thanks a lot. Your forum is the ultimate source for guidance.