These example accounts will assist you in preparing financial statements by illustrating the required disclosure and presentation for UK groups and UK companies reporting under FRS 102, 'The Financial Reporting Standard applicable in the UK and Republic of Ireland'. operating leases etc.) Note that the government has included within Finance (No.2) Act 2015 an exemption to cover distressed debt, which would apply in certain cases where the loan is modified or replaced. As noted above, for companies applying Old UK GAAP the accounting for financial instruments can be segregated into 2 camps those that apply FRS 26 and those that dont. As a result, the company may be required to derecognise / recognise the debt. Section 1A provides for certain modifications to the full requirements for small companies, and in particular provides reduced disclosure and presentation requirements. S328 and S606 CTA 2009 ensure that exchange movements taken to reserves arent immediately brought into account. Sch 3A requires details of movement in revaluation reserve, fair value reserve and profit and loss reserves to be disclosed therefore the presentation of this would meet the requirements. This ensures that there is continuity of treatment. In some cases where revenue expenditure is added to the cost of an asset, tax law follows the accounts by recognising for tax purposes amounts reflected in profit and loss account by way of depreciation charge to the extent that they are a write off of revenue expenditure. FRS 102 states that there is a rebuttable presumption that contributions to an intermediate payment arrangement where the employer is a sponsoring entity are made in exchange for another asset and dont represent an immediate expense. Therefore, the company law requirement for use of a consistent accounting framework will still be met, even if adoption of the new standards is staggered. Pat Doyle ACIS, Corporate Law & Company Secretarial Practice Welcome to Relate-software.com! The general principles of revenue recognition within FRS 5 Application note G are that revenue is recognised when the seller obtains the right to consideration in exchange for the goods, services, or work performed. A company has a loan with non-vanilla terms in an unconnected company which is due to be repaid in 5 years. As such, where the company prepares IAS accounts, these will be used to calculate profits; and in other cases the profits will be calculated on the basis of UK GAAP (as it would be applicable for such a company). FRS 102 does permit the use of titles/descriptions that differ to those used in the standard itself, and some companies may retain the Old UK GAAP descriptions. The definition of an intangible asset in Old UK GAAP (FRS 10) states that intangible asset are Non-financial fixed assets that dont have physical substance but are identifiable and are controlled by the entity through custody or legal rights.. The accountancy and tax treatment of hedging relationships is discussed above (see chapter 4.6). This part of the paper provides a comparison of the ongoing accounting and tax differences that arise between Old UK GAAP and FRS 102. In contrast, FRS 102 requires that, where the modification or restructuring to the debt is considered substantial, the original debt instrument will be derecognised and the new debt instrument recognised at its fair value. Adjustments on loan relationships as a result of changes in accounting policy can arise under 2 separate parts of the regime. Monetary amounts in these financial statements are rounded to the nearest . Small companies applying FRS 102 can take advantage of generous disclosure exemptions in CFM64000 explains the operation of these rules. This ensures that there is continuity of treatment. However, companies are permitted to adopt a policy of recognising a gain or loss on such transactions. Get subscribed! For companies where costs on expenditure such as software have been previously written off to profit and loss account and claimed as a deduction in a Case I computation in respect of expenditure on a tangible asset, the following tax consequences will apply in respect of the change of accounting policy. FRS 102 differs from Old UK GAAP in respect of UEL. Whats the best way to process invoices in Sage? There are no significant differences between Section 21 of FRS 102 and FRS 12. disclose: No however would be considered necessary to show true and fair view as required under, Directors remuneration including connected parties/shadow/defacto directors (Section 305,305A & 306 CA 2014), Loans/quasi loans/ given to directors (inc. de facto & shadow) and any guarantees/credit. We can create a package that's catered to your individual needs. Section 1A of FRS 102, available to small companies, is aligned to FRS 102 but with reduced disclosures and presentation requirements FRS 105 is based on the recognition and. This method of accounting is sometimes called the cover method or net investment hedging. Where a reliable estimate of the UEL cannot be made, FRS 102 states that the UEL must not exceed 5 years (note however, that effective periods commencing on or after 1 January 2016 this is changed to 10 years). On transition, the difference between the closing value for the previous period and opening value in the current period is to be brought into account, with the amount spread over a period of ten years. First accounts case with EMI share options and considering whether the EMI share options should be recognised in FRS102 s1A accounts. FRS 102 doesnt specify how such costs should be treated. Where transition adjustments arise include a note in line with full FRS 102 (i.e. In particular, there are specific rules for loan relationships, derivative contracts and intangible fixed assets which only apply for the purposes of Corporation Tax. Regulations 7 and 8 of the Disregard Regulations deals with currency, commodity and debt contracts used to hedge a forecast transaction or firm commitment. Nevertheless the emphasis on the transfer of risk and rewards is such that in most cases the classification of leases will be consistent between Old UK GAAP and FRS 102. Revenue recognition under FRS 102 will primarily be determined by Section 23 of FRS 102. However, while the classification and presentation may not change the subsequent measurement of such items may change on adoption of FRS 102. The FRS 102 Section 1A compliance pack contains the mandatory primary statements and disclosures, and the encouraged primary statements and disclosures by default. S.1A are the minimum disclosures. However consolidated accounts can be informative and can provide useful information which doesnt show up on the face of the individual accounts. Reduced disclosures are available for In addition, where the respective recognition criteria are met, Section 23 also requires that revenue is recognised at the fair value of the consideration received or receivable. For further details of the treatment of transitional adjustments for loan relationships and derivative contracts see CFM76000 onwards. (3) Interest rate contracts in a hedging relationship (Reg 9 contracts). Tax law determines the value of trading stock for the business ceasing and its value for the successor business see Chapter 11 Part 3 CTA 2009. where consolidated accounts can be obtained from if applicable. Are the circumstances so unique you thought it might give away the identity of your client? For the period ending 31 March 2020 the company was entitled to . `:iz!S_PWIzmK]A3a.zs@2. interest free/favourable interest and not repayable on demand) at the amortised cost at the opening of the current year (and to determine the rate of interest at that time) no need to restate comparative year etc. The effect of this regulation is to disregard for tax purposes the amounts recognised in the statement of equity (as items of other comprehensive income) until they are recycled to the income statement. Under Old UK GAAP where FRS 26 doesnt apply, where debt is restructured or have its terms modified, no gain or loss would be recognised in the accounts. Its likely that many more financial instruments will be required to be fair valued under FRS 102 than is currently the case under Old UK GAAP. Section 1A will be updated for the new legislation once enacted. Similar tax rules apply for changes in accounting policies or errors on non-trade items, such as loan relationships, derivative contracts and intangible fixed assets. Where a fundamental error is identified FRS 3 requires that this is accounted for by restating the prior period comparative figures. In all cases the issuer will be required to account for the debt and the equity components separately (see CFM21260). movement of profit and loss reserves to be disclosed including details of transfers. In particular, the tax treatment now follows the amounts recognised in profit or loss. The disclosure requirements of section 1A of FRS 102 have been applied other than where additional disclosure is required to show a true and fair view. Where such costs did not relate to bringing an item of IT into use they would typically have been written off direct to the P&L. In this case, movements in fair value of investment properties arent taxable. That approach will continue to apply for prior period adjustments arising in accordance with Section 10 of FRS 102. This will allow companies to prepare financial statements under Section 1A of FRS 102 by applying the requirements of the small companys regime in the Companies Act. In contrast, FRS 102 requires that where modification is considered substantial the original debt instrument will be derecognised and the new instrument recognised at its fair value. The recognition criteria within Section 23 are broadly aligned with Old UK GAAP. In addition, where items to which Arabic numbers are given in any of the formats have been combined (e.g. The Technical Advisory Service comprises the technical enquiries, ethics advice, anti-money laundering and fraud helplines. Also, there are specific rules dealing with derivative contracts which form part of a hedging relationship (these are explained in more detail below). For tax purposes the treatment of employee benefit contributions is dealt with at Part 20 Chapter 1 CTA 2010. FRS 100 Application of Financial Reporting Requirements summary and timeline. For tax purposes Sections 871-879 of Part 8 CTA 2009 provide a comprehensive set of rules for changes in accounting for intangibles and especially for cases where what is included entirely as goodwill under Old UK GAAP is disaggregated into different types of intangible property with different amortisation rates or impairment factors under FRS 102. Required by Sch 3A(58) of CA 2014. This must be made in advance of the date its to take effective. FRS 102 Section 25 and FRS 15 on capitalising borrowing costs are similar both permit such treatment where relevant criteria are met. The requirements of FRS 102 (Section 9) are comparable. Transition to New UK GAAP will impact on the accounts in 2 key ways: Tax legislation for companies requires that the profits of a trade are calculated in accordance with generally accepted accountancy practice, subject to any adjustment required or authorised by law in calculating profits for Corporation Tax purposes (section 46 Corporation Tax Act 2009). These financial statements have been prepared in accordance with FRS 102 "The Financial Reporting . Sch 3A(51) CA 2014, Include note disclosing the fact the ES PASE was applied if that is the case, Disclose movement on fair value of investments in associates, subsidiaries or joint ventures where held at fair value. Deloitte Guidance UK Accounting Standards. Its aimed at the opening adjustments to the cashflow hedge element of shareholders equity reserves. The same approach will continue where Section 25 of FRS 102 is applied. In certain situations it may be appropriate to adopt a no gain/no loss policy, so that the value of the equity issued is treated as being equal to the carrying value of the debt given up. If the standard setters really want to be taken seriously they'll just have to specify what they want or don't want. News stories, speeches, letters and notices, Reports, analysis and official statistics, Data, Freedom of Information releases and corporate reports. Section 11 addresses Basic financial instruments while Section 12 considers all other financial instruments. See Part B of this paper for commentary on this. Under Old UK GAAP where FRS 23 (and FRS 26) doesnt apply, a company can translate permanent as equity debt at its historic cost. FRS 102 is consistent with Old UK GAAP in this regard. ICAEW members have permission to use and reproduce this helpsheet on the following conditions: For further details members are invited to telephone the Technical Advisory Service T +44 (0)1908 248250. Significantly reduced disclosures. The following commentary concerns permanent-as-equity loans, for example made by a parent to a subsidiary undertaking, which represent an arms length provision. The amount of the debit or credit is the difference multiplied by the fraction tax written-down value/accounting value, where both these values are those at the end of the earlier period. All intangibles and goodwill are presumed to have a finite life and the period over which they are subject to amortisation should reflect this. As such, the Regulations are applicable to transitions to FRS 101 and FRS 102 in the same way as they applied to transitions to IAS or FRS 26. Usual disclosures required with regard to movement, terms of arrangements, names of directors, % of loan to net assets etc. Note there are particular tax rules, the herd basis, that can be applied to particular farm animals. These amounts will subsequently be recycled through the income statement and so ensures continuity of treatment. Need help? There is no specific standard for revenue recognition in Old UK GAAP. For companies section 320 CTA 2009 provides specific rules which allow relief for capitalised borrowing costs but only where they relate to a fixed capital asset or project. Since the accounting is followed where the incentive isnt capital (for example, a rent free period) the difference may alter the timing of income recognition for tax purposes.