[et_pb_section admin_label=”Header – All Pages” global_module=”1221″ transparent_background=”off” background_color=”#1e73be” allow_player_pause=”off” inner_shadow=”off” parallax=”off” parallax_method=”off” padding_mobile=”off” make_fullwidth=”off” use_custom_width=”off” width_unit=”on” make_equal=”off” use_custom_gutter=”off” gutter_width=”3″ custom_padding=”||0px|”][et_pb_row global_parent=”1221″ admin_label=”row”][et_pb_column type=”4_4″][et_pb_post_title global_parent=”1221″ admin_label=”Post Title” title=”on” meta=”off” author=”on” date=”on” categories=”on” comments=”on” featured_image=”off” featured_placement=”below” parallax_effect=”on” parallax_method=”on” text_orientation=”left” text_color=”light” text_background=”off” text_bg_color=”rgba(255,255,255,0.9)” module_bg_color=”rgba(255,255,255,0)” title_all_caps=”off” use_border_color=”off” border_color=”#ffffff” border_style=”solid” title_font=”|on|||” title_font_size=”35″ custom_padding=”10px|||”] [/et_pb_post_title][/et_pb_column][/et_pb_row][/et_pb_section][et_pb_section admin_label=”Section” global_module=”1228″ fullwidth=”off” specialty=”off” transparent_background=”off” allow_player_pause=”off” inner_shadow=”off” parallax=”off” parallax_method=”off” custom_padding=”0px||0px|” padding_mobile=”on” make_fullwidth=”off” use_custom_width=”off” width_unit=”on” make_equal=”off” use_custom_gutter=”off” gutter_width=”3″][et_pb_row global_parent=”1228″ admin_label=”Row” make_fullwidth=”off” use_custom_width=”off” width_unit=”on” use_custom_gutter=”off” gutter_width=”3″ custom_padding=”0px||0px|” padding_mobile=”off” allow_player_pause=”off” parallax=”off” parallax_method=”off” make_equal=”off” parallax_1=”off” parallax_method_1=”off” column_padding_mobile=”on”][et_pb_column type=”4_4″][et_pb_text global_parent=”1228″ admin_label=”Text” background_layout=”light” text_orientation=”left” text_font_size=”14″ use_border_color=”off” border_color=”#ffffff” border_style=”solid”] [breadcrumb] [/et_pb_text][/et_pb_column][/et_pb_row][/et_pb_section][et_pb_section admin_label=”Section” fullwidth=”off” specialty=”off”][et_pb_row admin_label=”Row”][et_pb_column type=”1_2″][et_pb_text admin_label=”Text” background_layout=”light” text_orientation=”center” use_border_color=”off” border_color=”#ffffff” border_style=”solid”]
[button link=”https://ie.frs102.com/members/premium-toolkit/” type=”big” color=”red”] Return to Main Index[/button]
[/et_pb_text][/et_pb_column][et_pb_column type=”1_2″][et_pb_text admin_label=”Text” background_layout=”light” text_orientation=”center” use_border_color=”off” border_color=”#ffffff” border_style=”solid”]
[button link=”https://ie.frs102.com/members/premium-toolkit/section-21/” type=”big” color=”red”] Return to Section 21 Home[/button]
[/et_pb_text][/et_pb_column][/et_pb_row][/et_pb_section][et_pb_section admin_label=”Section” fullwidth=”off” specialty=”off” transparent_background=”off” allow_player_pause=”off” inner_shadow=”off” parallax=”off” parallax_method=”off” padding_mobile=”off” make_fullwidth=”off” use_custom_width=”off” width_unit=”on” make_equal=”off” use_custom_gutter=”off” gutter_width=”3″][et_pb_row admin_label=”Row”][et_pb_column type=”4_4″][et_pb_text admin_label=”Main Body Text” background_layout=”light” text_orientation=”justified” use_border_color=”off” border_color=”#ffffff” border_style=”solid”]
Transition exemptions
Section 35 (L) allows an entity to ascertain the provision for the decommissioning cost at the date of transition as opposed to ascertaining this at the date the requirement for a provision arose. As old GAAP required decommissioning provisions this exemption is not likely to be that relevant.
Section 35 of FRS 102 provides no further transition exemptions.
Principal transition adjustments
1) Inclusion of future operating losses in a provision for termination of operations
Under old GAAP, a provision could be made under FRS 3 for future operating losses to be incurred between the year end date and the date operations eventually cease. Under Section 21 recognition of such losses are not allowed. Where a provision for termination/closure has been included on the date of transition or the comparative year, these losses will have to be derecognised. This will include a deferred tax adjustment for a tax adjustment previously claimed which will not be allowed for tax purposes until the following year under FRS 102. The deferred tax will be released in line with when the adjustment is included in the future tax computations under the relevant tax authorities transition rates.
Example 25: Inclusion of future operating losses in a provision for termination of operations under old GAAP
During the year ended 31 December 2013 Company A made a formal announcement to all effected parties that the Company would cease trading on 30 April 2014. At the 31 December 2013 under old GAAP a provision of CU1 million was included for the cost of closure including the cost of redundancies. Included in this provision was CU300,000 for the cost of future losses for the period 1 January to 30 April 2014. The provision for future losses as part of a closure provision was allowed under old GAAP. Assume the deferred tax rate is 10% and the date of transition is 1 January 2014 and the provision was allowable for tax purposes.
Under Section 21 of FRS 102, future operating losses cannot be included in a closure provision. As a result the following transition adjustments are required:
On 1 January 2014
|
|
CU |
CU |
|
Dr Provisions |
300,000 |
|
|
Cr Profit and Loss Reserves |
|
300,000 |
Being journal to reverse the future operating losses included in the provision
|
|
CU |
CU |
|
Dr Profit and Loss Reserves for Deferred Tax (CU300,000*10%) |
30,000 |
|
|
Cr Deferred Tax Liability |
|
30,000 |
Being journal to reflect deferred tax on the above adjustment as a tax deduction was obtained in 2013 however since it has now been taken out it is then a deferred tax liability. A deduction will not be allowed until 2014.
Adjustment required in 2014 financial statements assuming the above journals are posted to reserves
|
|
CU |
CU |
|
Dr Administrative Expenses |
300,000 |
|
|
Cr Provisions |
|
300,000 |
Being journal to reflect reversal of transition posting on 1 January 2014 above for the fact that losses were incurred in 2014 and the provision under old GAAP in 2013 would have been reversed, therefore this journal ensures the losses are shown in the 2014 financial statements.
|
|
CU |
CU |
|
Dr Deferred Tax Liability |
30,000 |
|
|
Cr Deferred Tax P&L |
|
30,000 |
Being journal to reflect the reversal of the deferred tax previously recognised.
No further adjustments are required in the 2014 and 2015 books. If the provision was booked in the 31 December 2014 year end, then the opening transition journal above would be to debit administration costs in the P&L as opposed to profit and loss reserves. The 2015 journal would be the same as the 2014 journal above. The same deferred tax journal would be posted in the year ended 31 December 2014 as was posted on 1 January 2014 and this deferred tax will reduce over a 5 year period in line with the tax transition rules.
[/et_pb_text][/et_pb_column][/et_pb_row][/et_pb_section]