Aston Villa uses new rule to wipe out debt

Aston Villa uses new rule to wipe out debt

A Premier League football club has used a new accounting rule to reclassify a £21m loan, effectively wiping out long-term debt.

Link: Watford FC cuts salaries to avoid collapse

At a time when football clubs’ finances are under close scrutiny, Aston Villa has used Urgent Issues Task Force rule 33 to reclassify an interest free loan from Premier TV, a subsidiary of media company NTL, as ‘other shareholders funds’. The move has made the balance sheet look ‘very healthy’ according to accounting analyst Company Reporting.

According to Aston Villa, the possibility of ‘doing anything other than repaying the loan through the issue of shares’ was remote and had decided, under the new rule introduced in March this year, to switch the loan from debt to equity.

‘The impact on the gearing is huge,’ said Company Accounting’s Mark Sproul.

‘It makes the balance sheet look very healthy.’

Under UITF 33, ‘obligations in capital instruments’, a loan need not be classified as debt where there was no realistic expectation that it would be repaid.

But the move might not be such good news for NTL, which sponsored the team until June this year – the club has placed a ‘fair value’ of £1.5m on the conversion.

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