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| Old GAAP | FRS 102 | Further Comment On Differences |
| Tangible Fixed Assets | Property Plant & Equipment (S.17) | |
| Cost or valuation model may be adopted. | Cost or valuation model may be adopted. | No differences. However as the entity has a choice on transition and where the revaluation model is chosen or where a previous valuation or fair value is treated as deemed cost (as allowed under Section 35.10) on transition, deferred tax will need to be recognised on any uplift. Example of adjustments required where fair value on the date of transition is treated as deemed cost i.e. one off valuation with a cost model adopted going forward (Example 56 – Fair Value As Deemed Cost). Example of adjustments required where previous valuation under old GAAP is treated as deemed cost (Example 57 – Previous GAAP Revaluation As Deemed Cost). Example of adjustments required where an entity applied a revaluation model under old GAAP but decides to apply the cost model under new GAAP (Example 58 – Revaluation Option Chosen Under Old GAAP, Reverting To The Cost Model On Transition). If an entity continues to apply the revaluation option then see Example 57 above as deferred tax will need to be recognised. |
| More detailed guidance on valuation basis and methods – every 5 years by a qualified valuer with interim revaluation in year 3 are required. | Revaluations with sufficient regularity to ensure that the carrying amount does not differ materially from the fair value. Therefore more judgement is required, in a volatile market this may require more frequent valuations. The use of a professional valuer is not mandated however it does state that it would be usual for one to be used. | FRS 102 is less prescriptive and requires judgement, where the entity operates in a less volatile market, then the guidance under old GAAP would still be deemed appropriate as long as it materially reflects fair value. Although FRS 102 does not require a qualified professional valuer to be utilised, care should be taken where one is not used and where this occurs it should be disclosed. Ideally a professional valuer should be used. |
| Residual value based solely on initial residual value at the date of acquisition or the date of revaluation and does not take into account expected future price changes. | Residual value allows account to be taken of inflation arising after the acquisition of the asset up to the current reporting date or balance sheet date (Potential impact on Depreciation). Requirement to adjust prospectively and disclose as a change in accounting estimate. | Where assets have a significant residual value or where an asset is a commodity type item, where material an adjustment may be required after the date of transition (under Section 35.9 a change in accounting estimate cannot be corrected retrospectively). |
| Depreciable amount – the difference between the cost and the initial residual value. | Depreciable amount – the difference between the cost and the residual value. | No differences. |
| Depreciation – allocation of depreciable amount on a systematic basis over it’s remaining useful life reflecting the consumption of economic benefit. | Same as old GAAP. | No differences. |
| Useful life reviewed at the end of each reporting period and revised if different. | No annual requirement to review useful economic life but review if an impairment indicator exists. | While there is a difference here, it is unlikely to create issues as FRS 102 still requires a review where indicators of impairment exist. |
| No such concept under FRS 15 as investment property had to be measured reliably and therefore was always classified as investment property. | If investment properties fair value cannot be measured reliably or without undue cost or effort, then they are accounted for under Section 17 – PPE. The amount to be transferred to PPE is the carrying amount at the date the reliable measurement cannot be determined. The property is then depreciated from that date. | This differs from old GAAP. Therefore since transition, where investment property cannot be reliably measured or cannot be measured without undue cost or effort, then a reclassification adjustment will be required to transfer this to PPE from investment property and depreciate it from that date. The deferred tax on any uplift from tax cost at that date would be released as the depreciation on the asset is released. This is illustrated in Example 56 above. It is likely the sales deferred tax rate would still be used as the intention is to sell that asset at some time in the future. |
| Non specialised properties – Existing Use Value. Properties surplus to an entities requirements – Open Market Value less selling costs. | Land & Buildings – market based evidence by appraisal that is normally undertaken by professionally qualified valuer. Consideration needed on transition to assess if the previous GAAP valuation used the appropriate basis. | A difference may arise here where under old GAAP the valuation was performed on the basis of existing use whereas under FRS 102, fair/market value should be used. Where a valuation has been performed an assessment will have to be made as to whether the value in use versus the market value basis differs. |
| Specialised properties – Depreciated Replacement Cost. | If no market-based evidence of fair value because of specialised nature of the item, which is rarely sold, except as part of a continuing business, depreciated Replacement Cost may be estimated. This should only be utilised once the other valuation methods have been exhausted. | No differences expected. |
| Tangible fixed assets other than properties – Open Market Value (or Depreciated Replacement Cost where market value not obtainable). | Plant & Equipment – market value determined by appraisal. If no market-based evidence of fair value because of specialised nature of the item, which is rarely sold, except as part of a continuing business, Depreciated Replacement Cost may be estimated. This should only be utilised once the other valuation methods have been exhausted. | No differences expected. |
| FRS 15 made it clear that the cost of replacement is only capitalised if previously separately identified and depreciated, otherwise subsequent expenses are expensed. Under FRS 15 whether assets were only identified in separate components depended on whether the useful life of the component was substantially different, from the remainder, the degree of irregularity in the level of expenditures to restate the component or asset in different accounting periods. | Section 17.6, 17.16 and section 17.17 requires capitalisation of the replacement part and de-recognition of the carrying amount of those parts that are replaced where this is a significant component that requires replacement after a certain number of years. Under FRS 102, such replacement parts should be capitalised where they provide incremental benefits and the previous amount included in PPE derecognised. Where the initial cost of the item replaced cannot be determined, then applying IAS 16 principals, the depreciated replacement cost can be used. In this particular case a transition adjustment may be required as detailed across. Day-to-day servicing is recognised in the profit and loss in the period incurred. | Where a significant part of a fixed asset was upgraded/replaced/renovated under old GAAP in the comparative year of the first set of FRS 102 financial statements, this cost was expensed as it was not separately depreciated, a transition adjustment may be required under FRS 102. See example attached which illustrates the adjustments required (Example 59 – Significant Part Of A Fixed Asset Replaced Since The Date Of Transition). |
| Revaluation gains recognised in STRGL unless reversing previous revaluation losses. | Revaluation gains recognised in other comprehensive income and accumulated in equity. Recognised in P&L to extent that it is reversing decrease of assets previously recognised in P&L. There should be no major differences on transition. | No differences. |
| A review for impairment of a fixed asset or goodwill (which has a life of 50 years or less) is carried out if events or changes in circumstances indicate that the carrying amount of the fixed asset or goodwill may not be recoverable. There is no requirement for an impairment review if there are no indicators of impairment on such assets. | Entities assess (for all assets regardless of the useful life) if there are any impairment indicators at each reporting date. If there is an indicator, an impairment test is required. Therefore there is no difference when compared to old GAAP. | No differences. For assets which have useful life of more than 50 years a difference arises. This has been discussed further below. |
| No specific requirement to present value items purchased on abnormal credit terms. Therefore, in practice treatment varied. | Where an asset is purchased on abnormal credit terms they should be present valued using a rate that would usually be charged for the extended credit period given. This may result in a transition adjustment depending on whether the exemptions in Section 35 are availed of whereby PPE is valued at fair value or a previous valuation (and from then on this is treated as deemed cost). | Where an entity does not elect to use a previous valuation or fair value as deemed cost or adopt a policy of revaluation on transition, then a transition adjustment may be required depending on materiality so as to show the cost of the asset net of the financing element. See attached an example of the journals required where such a transition is required (Example 60 – Purchasing On Deferred Credit Terms). |
| A mandatory impairment review is required for assets where the remaining useful life exceeds 50 years. | Section 17 has no specific requirement to perform a mandatory impairment review for assets where the remaining useful life exceeds 50 years, instead an impairment review should be performed where indicators of impairment exist which are deferred in Section 27 (which is the same for any other asset). This will result in a decrease in workload where no indicators are present. | Under FRS 102, where no indicators of impairment exist then no impairment review is required. This will reduce the workload for entities. This will not create any transition differences as where an entity has performed an impairment review under old GAAP, it would still be applicable under FRS 102. Hence no adjustments required as a result of this difference. |
| Computer software is property, plant and equipment. | No specific guidance on the classification of computer software/website development within Section 17, however in these situations it is usually appropriate to look to IFRS and under IFRS these assets are disclosed as intangible assets (software which is not an integral part of an asset/hardware). Therefore this would be seen to be the most appropriate classification. This may require an adjustment on transition to FRS 102 to transfer these assets to intangible assets. | Where software and website development costs have previously been included within PPE, on transition an adjustment may be required to transfer these to intangibles where they are not an integral part of the hardware. If this is the case, it will merely be a balance sheet reclassification from PPE to intangibles as the useful life etc. should remain the same. See attached an example illustrating the journals required (Example 61 – Transfer Of Software And Website Costs To Intangibles). |
| Property rented to group companies must be classified as PPE. | Property rented to group companies must be classified as investment property where it meets the investment property definition in Section 16. Where such a circumstance exists, it may require a transition adjustment such that it is carried at fair value (and the related deferred tax impact). | Where an entity leases property to another member of the group on transition this will require the property to be reclassified from property, plant and equipment to investment property and the property then to be shown at fair value if fair value can be measured without undue cost or effort (if it cannot be measured then it is classed as PPE). Deferred tax is also required to be recognised on the fair value adjustment. See attached an example of the transition adjustments required (Example 62 – Property Leased To Other Group Companies Classified As Investment Property). |
| No detailed guidance in SSAP 19 in relation to mixed use property so in the most part this was accounted for under FRS 15. Therefore, diversity in practice as to how this was treated. | Mixed use property that meets the definition of investment property in Section 16, should be accounted for as an investment property (subject to undue cost or effort) where the portion related to that element of the property can be apportioned and reliably measured. A transition adjustment may be required as detailed above. | A transition adjustment may be required to reclassify the investment property element from PPE to investment property, together with an adjustment for a change in fair value. The journals would be similar to those shown in Example 63 attached below. |
| Not applicable. | Section 35.10 deals with transition exemptions. An exemption is available to allow a first time adopter to elect to use a previous GAAP revaluation at or before the date of transition as its deemed cost or alternatively to using fair value as determined at the date of transition as deemed cost. If a policy of non-revaluation is adopted on transition where under old GAAP a revaluation reserve existed as the revaluation option was adopted, then under Section 17, this revaluation reserve will need to be transferred to profit and loss reserves (however it is non-distributable) or to a non-distributable reserve. | Where a previous revaluation is used as deemed cost, deferred tax will need to be recognised on the difference between the tax cost and the revalued amount. Where the asset is not depreciated, the deferred tax rate to use should be the sales tax rate (i.e. the capital gain tax rate). See attached an example of the journals required where this exemption is claimed (Example 64 – Previous GAAP Revalusation As Deemed Cost). Where fair value is used as deemed cost the movement will have to be posted to reserves on transition and the deferred tax impact also determined. See attached an example of the journals required where this exemption is claimed (Example 65 – Revaluation Option Chosen Under Old GAAP, Reverting To The Cost Model On Transition). If none of the above options are taken and previously the entity adopted a policy of revaluation and under FRS 102 decided to adopt a cost model, the journals required to account for this are attached (Example 66 – Revaluation Option Chosen Under Old GAAP, Reverting To The Cost Model On Transition). |
| No deferred tax to be recognised on revaluations unless there is a binding agreement in place. | Deferred tax to be recognised on revaluations and netted against the revaluation reserve (at the selling rate if the asset is not depreciated and where it is depreciated at the rate the asset is expected to be utilised which is usually through use in the trade and therefore the trade rate is used). The deferred tax is released into the profit and loss as the assets are depreciated. Even where a revaluation option is not chosen but where on transition the client uses a previous valuation under old GAAP as the deemed cost, deferred tax will have to be recognised on the difference between the tax cost including indexation (provided indexation does not create a loss if so, then no gain/loss is recognised and the carrying value). | This is a significant difference. Where an entity has adopted fair value/a previous valuation as deemed cost or have applied the revaluation option, deferred tax will need to be recognised between the tax base cost (including indexation where it does not create a loss) and the carrying amount. The adjustments required on transition are detailed in Examples 64, 65 and 66 above. |
| Not applicable. | Section 35.10 deals with transition exemptions. Where in the past an entity has not recognised the cost of dismantling, removing and restoring a site/property to its original condition, then an entity can instead of including the cost on transition at the date the liability arose can elect to show this cost at the date of transition to FRS 102. In reality such a provision should have been recognised under old GAAP. | As old GAAP required the recognition of a restoration/dilapidation/ remediation provision which is a replica of the FRS 102 requirements, this exemption should not be that applicable as there are no transition adjustments where such a provision was recognised under old GAAP. In the unlikely event that an entity had not provided for such a cost, then it is likely a prior period adjustment may be required and this would need to be disclosed separately from any other transition journals. See attached an example of how such a provision should be accounted for under FRS 102 (Example 67 – Transfer Of Software And Website Costs To Intangibles). |
| A change from a historical cost model to a revaluation model is a change in an accounting policy and therefore requires retrospective adjustment. | A change from a historical cost model to a revaluation model is a period change and not a change in accounting policy and therefore is to be treated prospectively. | This is a major difference. Where a change from a cost model to a revaluation model occurs it is adjusted prospectively (except where it is adopted on transition in which case it is posted through profit and loss reserves). This will make it easier for entities to change a policy going forward. Disclosures will also be required. |
| Spare parts, service equipment and stand-by equipment are not specifically mentioned in SSAP 9 or FRS 15. Therefore, the treatment varies whereby spare parts etc were classified as either inventories or property, plant and equipment. | Spare parts (including stand-by equipment and service equipment) are classified as property plant and equipment when they are expected to be used during more than one period or only used in connection with an item of property, plant and equipment. This may require an adjustment on transition, if previously under old GAAP, these were included within inventory. Depreciation will also be required to be charged going forward. For the comparative year a deferred tax adjustment may be required as the depreciation in that period may be allowed in future tax computations under the tax transition arrangements. | Where an entity has previously classified spare parts, standby equipment or servicing equipment as inventory, an adjustment will be required to reclassify this to PPE on transition to FRS 102. Depreciation will also be required to be charged going forward. For the comparative year a deferred tax adjustment may be required as the depreciation in that period may be allowed in future tax computations under the transition arrangements. See worked example attached which provides the journals required on transition to FRS 102 (Example 68 – Reclassification Of Spare Parts From Inventory To PPE). |
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