[et_pb_section bb_built=”1″ admin_label=”Header – All Pages” transparent_background=”off” background_color=”#1e73be” allow_player_pause=”off” inner_shadow=”off” parallax=”off” parallax_method=”off” make_fullwidth=”off” use_custom_width=”off” width_unit=”on” make_equal=”off” use_custom_gutter=”off” custom_padding=”0px||0px|” next_background_color=”#000000″ custom_padding_tablet=”50px|0|50px|0″ custom_padding_last_edited=”on|desktop” global_module=”1221″][et_pb_row admin_label=”row” global_parent=”1221″ make_fullwidth=”off” use_custom_width=”off” width_unit=”on” use_custom_gutter=”off” custom_padding=”||5px|” allow_player_pause=”off” parallax=”off” parallax_method=”on” make_equal=”off” parallax_1=”off” parallax_method_1=”off” background_position=”top_left” background_repeat=”repeat” background_size=”initial”][et_pb_column type=”4_4″][et_pb_post_title global_parent=”1221″ 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)” use_border_color=”off” border_color=”#ffffff” border_style=”solid” custom_padding=”10px|||” parallax=”on” background_color=”rgba(255,255,255,0)” /][/et_pb_column][/et_pb_row][/et_pb_section][et_pb_section bb_built=”1″ fullwidth=”off” specialty=”off” transparent_background=”off” allow_player_pause=”off” inner_shadow=”off” parallax=”off” parallax_method=”off” custom_padding=”30px||0px|” make_fullwidth=”off” use_custom_width=”off” width_unit=”on” make_equal=”off” use_custom_gutter=”off” background_color=”#1e73be” prev_background_color=”#000000″ next_background_color=”#ffffff” custom_padding_tablet=”0px||0px|” global_module=”1228″][et_pb_row global_parent=”1228″ make_fullwidth=”off” use_custom_width=”off” width_unit=”on” use_custom_gutter=”off” custom_padding=”30px||0px|” allow_player_pause=”off” parallax=”off” parallax_method=”off” make_equal=”off” parallax_1=”off” parallax_method_1=”off” column_padding_mobile=”on” background_position=”top_left” background_repeat=”repeat” background_size=”initial”][et_pb_column type=”4_4″][et_pb_text global_parent=”1228″ background_layout=”light” text_orientation=”left” use_border_color=”off” border_color=”#ffffff” border_style=”solid” background_position=”top_left” background_repeat=”repeat” background_size=”initial”] [breadcrumb] [/et_pb_text][/et_pb_column][/et_pb_row][/et_pb_section][et_pb_section bb_built=”1″ 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″ custom_padding_tablet=”0px||0px|” custom_padding_last_edited=”on|desktop” prev_background_color=”#1e73be” next_background_color=”#000000″][et_pb_row][et_pb_column type=”4_4″][et_pb_toggle admin_label=”Index” _builder_version=”3.1.1″ title=”Index”]
Contents
35.2 First-time adoption – Extract from FRS102: Section 35.3-35.6.
35.2.1.2 Illustration of transition dates.
35.2.1.3 Complete set of financial statements.
35.2.1.4 Statement of compliance and statement that these are first set under FRS 102.
35.2.1.5 Disclosure where an entity is applying the reduced disclosure framework.
35.3 Procedures for preparing financial statements at the date of transition.
35.3.1 Extract from FRS102: Section 35.7-35.8.
35.3.2.2 Practical adjustments on transition to FRS 102.
35.4 Mandatory exceptions to retrospective application – derecognition.
35.4.1 Extract from FRS102: Section 35.9(a).
35.4.2.1 Derecognition defined.
35.5 Mandatory exceptions to retrospective application – accounting estimates.
35.5.1 Extract from FRS102: Section 35.9(c)
35.5.2.1 Non retrospective adjustment account estimates.
35.5.2.2 Retrospective adjustments to a prior period material error.
35.6 Mandatory exceptions to retrospective application – discontinued operations.
35.6.1 Extract from FRS102: Section 35.9(d).
35.7 Mandatory exceptions to retrospective application – non-controlling interest.
35.7.1 Extract from FRS102: Section 35.9(e).
35.8 Optional exemptions – business combinations.
35.8.1 Extract from FRS102: Section 35.10(a).
35.8.2.2 Possible adjustments even where the exmption is claimed – deferred tax.
35.8.2.3 Adjustments to business combinations where it occurs after the date of transition.
35.9 Optional exemptions – Share based payment transactions.
35.9.1 Extract from FRS102: Section 35.10(b).
35.10 Optional exemptions – Fair value or revaluation as deemed cost.
35.10.1 Extract from FRS102: Section 35.10(c) and Section 35.10(d).
35.10.2.2 Previous GAAP revaluation as deemed cost.
35.10.2.3 Fair value as deemed cost.
35.10.2.4 Revaluation option chosen under old GAAP, reverting to the cost model on transition.
35.11.1 Extract from FRS102: Section 35.10(f).
35.12 Optional exemptions – Compound financial instruments.
35.12.1 Extract from FRS102: Section 35.10(g).
35.13.1 Extract from FRS102: Section 35.10(l).
35.14 Optional exemptions – Dormant companies.
35.14.1 Extract from FRS102: Section 35.10(m).
35.14.2.2 When is an entity considered dormant?
35.15 Optional exemptions – Deferred development costs as a deemed cost.
35.15.1 Extract from FRS102: Section 35.10(n).
35.15.2.2 What happens if an entity expensed developments costs in the past?
35.16 Optional exemptions – Borrowing costs.
35.16.1 Extract from FRS102: Section 35.10(o).
35.17 Optional exemptions – lease incentives.
35.17.1 Extract from FRS102: Section 35.10(p).
35.17.2.2 Leases incentives received since the date of transition.
35.18 Optional exemptions – Public benefit entity combinations.
35.18.1 Extract from FRS102: Section 35.10(q).
35.19.1 Extract from FRS102: Section 35.10(r).
35.20 Optional exemptions – Hedge accounting – deemed meeting of hedge documentation conditions.
35.20.1 Extract from FRS102: Section 35.10(t).
35.21.1 Extract from FRS102: Section 35.10(u) and Section 35.10(v).
35.22 Impracticability – In transition.
35.22.1 Extract from FRS102: Section 35.11.
35.22.2.1 What is defined as impracticable.
35.22.2.2 What is the exemption.
35.24.1 Extract from FRS102: Section 35.12-35.15.
35.24.2.2 Sample Accounting policy note detailing first time disclosure.
35.24.2.3 Transition exemption not (application of Section 35.12 to 35.15 of FRS 102).
35.24.2.4 Transition note – (applying requirements of Section 35.12 to 35.15 of FRS 102).
35.24.2.4.1.1 Holiday pay accrual.
35.24.2.4.1.2 Rent free period for operating leases.
35.24.2.4.1.3 Revaluation of tangible assets.
35.24.2.4.1.4 Sales on unusual credit terms.
35.24.2.4.1.5 Capitalisation of borrowing costs.
35.24.2.4.1.6 Investment Property carried at fair value.
35.24.2.4.1.7 Deferred taxation.
35.24.2.4.1.8 Revaluation of tangible assets.
35.24.2.4.1.9 Revaluation of tangible assets.
35.24.2.4.1.10 Past service costs – Defined benefit scheme.
35.24.2.4.1.11 Defined benefit scheme previously accounted for as a defined contribution scheme.
35.24.2.4.1.12 Net interest charge on defined benefit schemes.
35.24.2.4.1.13 Recognition of pension surplus.
35.24.2.4.1.14 Acquisition of non-controlling interest.
35.24.2.4.1.15 Restatement of prior acquisitions.
35.24.2.4.1.16 Loans and advances to group/related companies/directors.
35.24.2.4.1.17 Loans and advances from group/related companies/directors.
35.24.2.4.1.19 Traded investments.
35.24.2.4.1.20 Computer software.
35.24.2.4.1.21 Prior year adjustment – material error.
35.24.2.4.1.22 Statement of cash flows.
[/et_pb_toggle][/et_pb_column][/et_pb_row][et_pb_row][et_pb_column type=”3_4″][et_pb_text admin_label=”Main Body Text” text_orientation=”justified” use_border_color=”off” border_color_all=”off” module_alignment=”left” _builder_version=”3.1.1″]
35.24 Disclosures
35.24.1 Extract from FRS102: Section 35.12-35.15
Explanation of transition to this FRS
35.12 An entity shall explain how the transition from its previous financial reporting framework to this FRS affected its reported financial position and financial performance.
Reconciliations
35.13 To comply with paragraph 35.12, an entity’s first financial statements prepared using this FRS shall include:
(a) A description of the nature of each change in accounting policy.
(b) Reconciliations of its equity determined in accordance with its previous financial reporting framework to its equity determined in accordance with this FRS for both of the following dates:
(i) the date of transition to this FRS; and
(ii) the end of the latest period presented in the entity’s most recent annual financial statements determined in accordance with its previous financial reporting framework.
(c) A reconciliation of the profit or loss determined in accordance with its previous financial reporting framework for the latest period in the entity’s most recent annual financial statements to its profit or loss determined in accordance with this FRS for the same period.
35.14 If an entity becomes aware of errors made under its previous financial reporting framework, the reconciliations required by paragraphs 35.13(b) and (c) shall, to the extent practicable, distinguish the correction of those errors from changes in accounting policies.
35.15 If an entity did not present financial statements for previous periods, it shall disclose that fact in its first financial statements that conform to this FRS.
35.24.2 OmniPro comment
35.24.2.1 Overview
See below the application of the above guidance. Where any of the above exemptions have been claimed, this must be disclosed in the financial statements. Note the below note is an example, the note can be laid out in a different way.
35.24.2.2 Sample Accounting policy note detailing first time disclosure
Example 19: Extract from the accounting policy note
‘OmniPro Sample FRS 102 Limited is primarily engaged in the provision of construction services to both the private and commercial sectors. From their operations base and depot in Construction Place, Builders Lane, Dunblock, Any County they also sell pre-cast concrete products to private individuals and the construction industry. The company is supplied with the pre-cast concrete products by a wholly owned subsidiary company, which operates independently from a separate location.
The company is a limited liability company incorporated in XXX and has a company registration number of XXXX.
This is the first set of financial statements prepared by OmniPro Sample FRS 102 Limited in accordance with accounting standards issued by the Financial Reporting Council, including the FRS 102 “The Financial Reporting Standard applicable in the UK and Republic of Ireland” (“FRS 102”).
The significant accounting policies adopted by the Company and applied consistently in the preparation of these financial statements are set out below.
35.24.2.3 Transition exemption not (application of Section 35.12 to 35.15 of FRS 102)
Example 20: Extract from the notes to the financial statements – Transition exemption rate
- TRANSITION TO FRS 102
Prior to 1 January 2014 the company prepared its financial statements under previously extant UK and Irish GAAP/FRSSE. From 1 January 2013, the company has elected to present its annual financial statements in accordance with FRS 102 and the Companies Act 2014.
The comparative figures in respect of the 2014 financial statements have been restated to reflect the company’s adoption of FRS 102 from the date of transition at 1 January 2014.
Set out below are the changes in accounting policies which reconcile profit for the financial year ended 31 December 2014 and the total equity as at 1 January 2014 and 31 December 2014 between UK and Irish GAAP/FRSSE as previously reported and as reported under FRS 102.
In preparing this financial information, the company has applied certain exceptions and exemptions from full retrospective application of FRS 102 as noted below.
Exceptions
Derecognition of financial assets and liabilities
In accordance with FRS 102, as a first-time adopter, the company did not retrospectively recognise financial assets and liabilities previously derecognised under UK and Irish GAAP/FRSSE before the date of transition.
Accounting estimates
In accordance with FRS 102, as a first-time adopter, the company did not revise estimates on transition to reflect new information subsequent to the original estimates.
Non-controlling interests
In accordance with FRS 102, as a first-time adopter, the company did not revise how it previously accounted for changes in non-controlling interests prior to the date of transition.
Exemptions
Business combinations
The company has elected not to apply Section 19 of FRS 102 retrospectively to business combinations effected before 1 January 2014.
Rent free period for operating leases
Under previous UK and Irish GAAP/FRSSE operating lease incentives such as rent free periods, were spread over the shorter of the lease period or the period to when the rental was set to a fair market rent. FRS 102 requires that such incentives to be spread over the lease period. The company has taken advantage of the exemption for existing leases at the transition date to continue to recognise these lease incentives on the same basis as previous UK and Irish GAAP/FRSSE. Accordingly the FRS 102 accounting policy has been applied to new operating leases entered into since 1 January 2014.
Investments in subsidiaries
The company has adopted the carrying value of subsidiary investments under UK and Irish GAAP/FRSSE on the date of transition as their deemed cost at the date of transition as permitted by FRS 102.
Share based payment transactions
The company has elected not to apply Section 26 Share based payment to equity instruments granted before the date of transition to FRS 102.
Revaluation as deemed cost
The company previously adopted a policy of revaluing freehold premises and they were stated at their revalued amount less any subsequent depreciation and accumulated impairment losses. The company has adopted the transition exemption under FRS 102 paragraph 35.10(d) and has elected to use the previous revaluation as deemed cost.
35.24.2.4 Transition note – (applying requirements of Section 35.12 to 35.15 of FRS 102)
Example 21: FRS 102 Principle Adjustments
35.24.2.4.1 Reconciliation
The reconciliation of the profit and loss prepared in accordance with UK and Irish GAAP/FRSSE and in accordance with FRS 102 for the year ended 31 December 2014 and the reconciliation of the amount of total equity at 31 December 2014, before and after the application of FRS 102, is as follows:
| Profit for the | Total equity | Total equity | |
| year ended | as at | as at | |
| 31-Dec | 01-Jan | 31-Dec | |
| 2014 | 2014 | 2014 | |
| CU | CU | CU | |
| As reported under Irish GAAP | 132,818 | 587,000 | 719,818 |
| Accounting policy changes | |||
| Impact of: | |||
| – Holiday pay accrual (a) | (12,000) | (62,000) | (74,000) |
| – Revaluation of freehold premises (f) | – | XXXX | – |
| – Additional depreciation on uplift as a result of
revaluation of freehold premises (f) |
(XXXX) | – | – |
| – Rent free period for operating leases (b) | (32,000) | – | (32,000) |
| – Pension – recognition of group scheme (n) | – | – | – |
| – Restatement of previous business
combination – goodwill derecognised and reversal of amortisation |
– | – | – |
| – Restatement of previous business
combination – intangibles recognised and additional amortisation |
– | – | – |
| – Recognition of deferred tax on business
combinations entered into prior to transition |
– | – | – |
| – Present valuing non-market rate loans/
financing transactions |
– | – | – |
| – Pension unrecognised service costs | – | – | – |
| – Derivatives (t) | – | – | – |
| Deferred tax impact of: | |||
| – Holiday pay accrual | 1,000 | 6,000 | 7,000 |
| – Reversal of intangible asset (c) | 9,375 | 9,375 | |
| – Rent free period for operating leases (b) | 4,000 | 0 | 4,000 |
| – Revaluation of freehold premises (f) | |||
| – Pension adjustments (k) | |||
| – Revaluation of freehold premises (e) | – | (25,000) | 25,000 |
| 93,818 | 440,375 | 534,193 | |
| Correction of material errors | XXXX | XXXX | XXXX |
| Current tax effect on the correction error | (XXXX) | (XXXX) | (XXXX) |
| XXXX | XXXX | XXXX | |
| As reported under FRS 102 | 93,818 | 440,375 | 534,193 |
35.24.2.4.1.1 Holiday pay accrual
UK and Irish GAAP
Under previous UK and Irish GAAP provisions for holiday pay accruals were not recognised and holiday pay was charged to the Profit and Loss account as it was paid.
FRS 102
FRS 102 requires short-term employee benefits to be charged to the profit and loss account as the employee service is received.
Impact
This has resulted in the company recognising a liability for holiday pay of CU62,000 on transition to FRS 102. In the year to 31 December 2014 an additional charge of CU12,000 was recognised in the profit and loss account and the liability at 31 December 2014 was CU74,000.
35.24.2.4.1.2 Rent free period for operating leases
UK and Irish GAAP
Under previous UK and Irish GAAP operating lease incentives, such as rent free periods were spread over the shorter of the lease period or the period to when the rental was set to a fair market rent.
FRS 102
FRS 102 requires that such incentives to be spread over the lease period. The company has taken advantage of the exemption for existing leases at the transition date to continue to recognise these lease incentives on the same basis as previous UK and Irish GAAP. Accordingly the FRS 102 accounting policy has been applied to new operating leases entered into since 1 January 2014.
Impact
This has resulted in an increased operating lease charge of CU32,000 for the year 31 December 2014 with a corresponding increase in the accrued lease liability at 31 December 2014.
35.24.2.4.1.3 Revaluation of tangible assets
Under previous UK and Irish GAAP the company had a policy of revaluing freehold premises. On transition to FRS 102 the company has elected to use the previous revaluation of certain premises at 31 December 2013 as the deemed cost for that asset. There is no effect on the balance sheet on transition other than the recognition of deferred tax as discussed further below. In the year ended 31 December 2014 the revaluation for the year ended 31 December 2014 is no longer recognised in Other Comprehensive income but an adjustment was required for the movement on the deferred tax. . As the revaluation was effected at the end of the financial year there was no change to the depreciation charge for the year ended 31 December 2014.
35.24.2.4.1.4 Sales on unusual credit terms
UK and Irish GAAP
Under previous UK and Irish GAAP the company sold goods worth CU52,000 with unusual credit terms before the date of transition. The credit provided is for a period up to 31 December 2016. The normal cash price for these goods would be CU36,000.
FRS 102
FRS 102 requires the company to recognise this sale as a financing transaction with an associated interest element on the transaction
Impact
This has resulted in a decrease in debtors of CU11,305 on transition to FRS102 with deemed income earned in 2014 of CU5,307.
35.24.2.4.1.5 Capitalisation of borrowing costs
UK and Irish GAAP
Under previous UK and Irish GAAP the company adopted a policy of capitalising qualifying borrowing costs. On transition to FS 102, the company elects to expense all borrowing costs going forward.
FRS 102
FRS 102 requires the company to expense borrowing costs going forward.
Impact
This has resulted in a reduction of property, plant and equipment of CU60,000 on transition to FRS 102 and a resulting decrease in depreciation charged in 2014 of CU15,000.
35.24.2.4.1.6 Investment Property carried at fair value
UK and Irish GAAP
Under previous UK and Irish GAAP investment property was carried at open market value with movements in value recognised in the STRGL/revaluation reserve unless there was a downward revaluation which was considered permeant, in which case it was recognised in the profit and loss. Deferred tax was not required to be recognised on the revaluation unless there was a binding agreement to sell.
FRS102
FRS 102 requires movement on investment property to be recognised in the profit and loss where it can be reliably measured without undue cost or effort. Section 29 requires deferred tax to be recognised on the uplift at the sales tax rate. On transition an adjustment was made to recognise deferred tax of CU24,750 on the uplift. A further CU33,000 was recognised in 2014 for the deferred tax uplift at X. An adjustment was also required to reclassify the movement in 2014 from the revaluation reserve to the profit and loss account. A reclassification was also required at the date of transition to reclassify the CU75,000 uplift from the revaluation reserve to profit and loss reserves.
35.24.2.4.1.7 Deferred taxation
The company has accounted for deferred taxation on transition as follows:
- Holiday pay accrual – Deferred tax of CU7,750 has been recognised at X on the liability recognised on transition at 1 January 2014. In the year ended 31 December 2014 the company has recognised a credit of CU1,500 in the profit and loss account to reflect the additional deferred tax asset as a result of the increase of the holiday pay accrual.
- Rent free period for operating leases – In the year ended 31 December 2014 the company has recognised a credit of CU4,000 in the profit and loss account in respect of the deferred tax on the increased operating lease charge.
- Revaluation of freehold premises – Under previous UK and Irish GAAP the company was not required to provide for taxation on revaluations. Under FRS 102 deferred taxation is provided on the temporary difference arising from the revaluation at the tax rate the asset is expected to be realised. A deferred tax charge of CU18,750 arose on transition to FRS 102 and was set against other reserves. The CU375 of this deferred tax in 2014 represents the deferred tax impact of deprecation charged on the uplift in that year.
- Transfer of spare parts to Property, plant and equipment – Under previous UK and Irish GAAP the company carried spare parts as part of stock, on transition to FRS 102 these spare parts are now carried within property, plant and equipment. A deferred tax asset of CU1,000 has been recognised for the tax deduction not allowed in the comparative year at X (which will be allowed in the future).
- Sale with unusual credit terms – Under previous UK and Irish GAAP the company recognised finance income upfront on the sale of products with extended credit terms. On transition to FRS 102 this finance income must be removed and apportioned when earned by the company. A deferred tax asset of CU1,413 was recognised for the reduction in income on transition to FRS 102 at X% which will be released as the finance income credited to the profit and loss. CU663 of this asset was released in the 2014 year to set off against the finance income released.
- Revaluation of investment property – A deferred tax liability of CU24,750 was recognised on transition for the uplift in value. The deferred tax rate used was the sales tax rate of X. A further CU33,000 was recognised in the year 2014 to reflect deferred tax on the further uplift booked in 2014.
35.24.2.4.1.8 Revaluation of tangible assets
Under previous UK and Irish GAAP the company did not have a policy of revaluing freehold premises. On transition to FRS 102 the company has elected to use the fair value of certain premises at 31 December 2013 as the deemed cost for that asset and continue to adopt a policy of non-revaluation from that date as permitted under Section 35 of FRS 102. The property is depreciated over its useful economic life from that date. Therefore as a result of availing of this exemption, property, plant and equipment has increased by CUXXX and a non-distributable reserve created for the same amount at 1 January 2014 (date of transition). Deferred tax of CUXXX was also recognised on the difference between the fair value and the tax cost.
In the year ended 31 December 2014, additional depreciation of CUXXXX had to be charged to the profit and loss account on the uplift in the value of the property. A deferred tax credit of CUXXX was released to the profit and loss account in the 31 December 2014 for the additional depreciation recognition in the P&L.
35.24.2.4.1.9 Revaluation of tangible assets
Under previous UK and Irish GAAP the company did not have a policy of revaluing freehold premises. On transition to FRS 102 the company has elected to adopt a revaluation policy going forward. The property is depreciated over its useful economic life from that date. Therefore as a result of this election, property, plant and equipment has increased by CUXX and a revaluation reserve created for the same amount at 1 January 2014 (date of transition). In addition deferred tax of CUXXX was recognised and set against the revaluation reserve.
In the year ended 31 December 2014, additional depreciation of CUXXXX had to be charged to the profit and loss account on the uplift in the value of the property as well as a Credit for the release of the deferred tax on the depreciation charged on the uplift in that year. The movement during the year ended 31 December 2014 was posted net of the deferred tax of CUXXX through other comprehensive income to the revaluation reserve.
35.24.2.4.1.10 Past service costs – Defined benefit scheme
UK and Irish GAAP
Under previous UK and Irish GAAP, past service costs were recognised in profit and loss on a straight line basis over the period in which the increases in benefit vest.
FRS 102
FRS 102 requires that all past service costs are recognised immediately.
Impact
As a result of this difference, on transition, an unrecognised past service cost of CUXXXX was recognised in profit and loss reserves and the defined benefit liability increased accordingly. Deferred tax of CUXX was recognised on this adjustment.
35.24.2.4.1.11 Defined benefit scheme previously accounted for as a defined contribution scheme
The company is a member of a group defined benefit plan that shares risks between entities under common control.
UK and Irish GAAP
Under previous UK and Irish GAAP, this scheme was accounted for as a defined contribution scheme.
FRS 102
Under FRS 102, at least one member of the group companies must account for this as a defined benefit scheme, that being the entity that is legally responsible for the plan or alternatively the obligation is split between each group company based on a pre-defined legal split.
Impact
As a result of this difference, as this company is legally responsible for the scheme, the net deficit of CUXXXX was included in the balance sheet at the date of transition with a corresponding debit to profit and loss reserves on 1 January 2014.
As a result of this change in the year ended 31 December 2014 comparative there was an additional charge to profit and loss of CUXXX (being the difference between the contributions paid and the defined benefit accounting in the profit and loss) and an additional CUXXX debited to other comprehensive income for the re-measurement in line with Section 28. The liability on the defined benefit liability at 31 December 2014 was CUXXX. The related deferred tax asset of CUXXX was recognised on the balance sheet at the date of transition and a deferred tax asset of CUXXX for the year ended 31 December 2014 with CUXXX of the movement in deferred tax posted to the profit and loss and the remaining CUXXX posted to other comprehensive income.
35.24.2.4.1.12 Net interest charge on defined benefit schemes
UK and Irish GAAP
Under previous UK and Irish GAAP, interest on the defined benefit pension schemes was based on the difference between the expected return on plan assets and the interest cost on the liabilities.
FRS 102
Under FRS 102, that interest must be calculated based on the net pension deficit/surplus using the discount rate.
Impact
As a result of this difference, the profit decreased by CUXXX and the amount posted to other comprehensive income increased by the same amount. It had no effect on the net asset position or the defined liability carrying amount in the balance sheet.
35.24.2.4.1.13 Recognition of pension surplus
UK and Irish GAAP
Under previous UK and Irish GAAP, the criteria for recognition of a defined benefit surplus was much more prescriptive. A surplus could only be recognised where there is a formal signed agreement with the trustees in relation to the reduction in future contributions or a refund.
FRS 102
FRS 102 allows a surplus to be recognised where it can be shown that it will be able to recover the surplus either through reduced contributions in the future or through refunds from the plan
Impact
As a result of this difference, the additional defined benefit surplus of CUXXX has been recognised at the date of transition on 1 January 2014 and a corresponding credit posted to retained earnings net of deferred tax of CUXXX. As a result the defined pension surplus at 31 December 2014 increased by the same amount.
(i) Reclassification of deferred tax
UK and Irish GAAP
Under previous UK and Irish GAAP, the deferred tax balance on the defined benefit pension scheme was netted against the carrying amount of the defined benefit pension.
FRS 102
Under Section 28 and Section 29, deferred tax should not be netted against the defined benefit liability/asset instead it should be shown separately in the deferred tax balance in the balance sheet.
Impact
A reclassification adjustment of CUXXX was posted from the defined benefit liability to deferred tax included in provisions and liabilities at 31 December 2014.
35.24.2.4.1.14 Acquisition of non-controlling interest
UK and Irish GAAP
Under previous UK and Irish GAAP, the acquisition of non-controlling interests were accounted for as full acquisitions. Therefore the acquisitions were accounted for under acquisition accounting and goodwill recognised, and on disposal the profit/loss on disposal was recognised in the consolidated financial statements.
FRS 102
Section 9 requires that acquisitions or disposals in interests of subsidiaries that does not result in a change/loss of control after the transition date are accounted for as equity transactions.
Impact
As a result of this difference and given that during the year ended 31 December 2014 a non-controlling interest was acquired, at 31 December 2014, goodwill of CUXXX and a fair value uplift on property, plant and equipment of CUXXXX were derecognised. CUXXXX was recognised in retained earnings attributable to the shareholders of the company.
OR
As a result of this difference and given that during the year ended 31 December 2014 a X% non-controlling interest was disposed of, a transition adjustment was made to transfer the profit recognised on the disposal of CUXXX on this interest from the profit and loss account in that year to profit and loss reserves.
35.24.2.4.1.15 Restatement of prior acquisitions
FRS 102 enables preparers of financial statements to avail of an exemption in respect of legacy business combinations and these can be accounted for based on previous GAAP at the transition date. The group has chosen not to avail of this exemption. The group has elected to restate all acquisitions since XX/XX/XX which includes the acquisitions of XX Limited
UK and Irish GAAP
Under previous UK and Irish GAAP, the creation of a separate intangible asset from goodwill was very difficult as it not only had to be measured reliably but also needed to be separable. Therefore where it did not meet the definition for recognition it was consumed within goodwill. Deferred tax was not recognised on the difference between fair value of net assets compared to its book value.
FRS 102
Under FRS 102 the intangible does not have to be separable and therefore more intangibles are likely to be recognised resulting in less goodwill but more intangibles requiring recognition. Deferred tax is required to be recognised on the difference between fair value of net assets compared to its book value (other than goodwill which is set against goodwill).
Impact
A deferred tax liability of CUXXX was recognised on the difference between the fair value of net assets acquired and the book values at the date of transition and set against goodwill. A movement of CUXXX was posted during the year ended 31 December 2014.
At the 1 January 2014, additional intangibles relating to brand names and customer relationships with a net book value of CUXXX have been recognised, reducing the net book value of goodwill recognised of CUXXX.
Additional amortisation of CUXXX was recognised during the year ended 31 December 2014. The impact was to reduce the profit for the year and the net assets by CUXXX.
OR
FRS 102 enables preparers of financial statements to avail of an exemption in respect of legacy business combinations and these can be accounted for based on previous GAAP at the transition date. The group has chosen to avail of this exemption. However no exemption is provided for the recognition of deferred tax on such business combinations.
UK and Irish GAAP
Under previous UK and Irish GAAP, deferred tax was not recognised on the difference between fair value or net assets compared to its book value.
FRS 102
Under FRS 102 deferred tax is required to be recognised on the difference between fair value of net assets compared to its book value (other than goodwill).
Impact
As a result of this difference, a deferred tax liability of CUXX was recognised on the 1 January 2014 with the corresponding amount posted to retained earnings. Profit for the year ended 31 December 2014 was reduced by CUXXX as a result of the movement on the deferred tax on this acquisition during that year.
35.24.2.4.1.16 Loans and advances to group/related companies/directors
UK and Irish GAAP
Under UK and Irish GAAP, financial instruments at non-market rates transactions which included a financing arrangement could be stated at the amount actually given.
FRS 102
Under FRS 102, debtors including loans receivable are classified as basic financial instruments and must be carried at amortised cost. Long term loans advanced to third parties have been assessed under the requirements of Section 11 of FRS 102 and a number of these loans were given at non-market rates and therefore are required to be measured at the present value of the future payments discounted at the market rate of interest for a similar debt instrument at the inception of the arrangement.
Impact
As a result of this difference, this has resulted in a difference between the amount previously recognised for these loans and the present value of the loan at a market rate of interest. The impact is as follows:
- The carrying amount of long term debtors decreased by CUXXX at 1 January 2014 with a corresponding debit to profit and loss reserves/equity/capital contribution/other reserves/investments. There is no deferred tax impact of these adjustments as these are not taxable.
- The carrying amount decreased by CUXXX at 31 December 2014 with a corresponding credit to interest income in the profit and loss account to reflect the unwinding of the discount showing the movement in the loan from 1 January to 31 December 2014. There is no deferred tax impact of these adjustments as these are not taxable.
35.24.2.4.1.17 Loans and advances from group/related companies/directors
UK and Irish GAAP
Under UK and Irish GAAP, financial instruments at non-market rates or transactions which included a financing arrangement could be stated at the amount actually recevied.
FRS 102
Under FRS 102, creditors including loans payable are classified as basic financial instruments and must be carried at amortised cost. Long term loans received from various parties have been assessed under the requirements of Section 11 of FRS 102 and a number of these loans were received at non-market rates and therefore are required to be measured at the present value of the future payments discounted at the market rate of interest for a similar debt instrument at the inception of the arrangement.
Impact
As a result of this difference, this has resulted in a difference between the amount previously recognised for these loans and the present value of the loan at a market rate of interest. The impact is as follows:
- The carrying amount of long term loans/credits decreased by CUXXX at 1 January 2014 with a corresponding credit to profit and loss reserves. There is no deferred tax impact of these adjustments as these are not taxable.
- The carrying amount decreased by CUXXX at 31 December 2014 with a corresponding debit to interest expense in the profit and loss account to reflect the unwinding of the interest expense/discount showing the movement in the loan from 1 January to 31 December 2014. There is no deferred tax impact of these adjustments as these are not taxable.
35.24.2.4.1.18 Derivative financial instruments (Forward foreign currency contracts and interest rate swaps)
UK and Irish GAAP
Under previous UK and Irish GAAP there was no requirement to recognise derivative financial statements at fair value, instead they were disclosed. For interest rate swaps, the net interest was accrued.
Alternatively, an entity could choose to retranslate the year end foreign currency balances at the average forward rate that covers the net exposure.
FRS 102
FRS 102 requires these derivatives to be recognised at fair value on the balance sheet with movement year on year recognised in the profit and loss where hedge accounting is not adopted. Year-end foreign currency balances cannot be retranslated at a forward rate, instead the year end spot rate must be used.
Impact
The fair value of forward foreign exchange contracts equated to a loss of CUXXX at 1 January 2014 and to a profit of CUXXX at 31 December 2014. As a result at the date of transition, creditors were increased by CUXX at 1 January 2014 and the profit and loss reserve was debited with the same amount. Deferred tax of CUXX was recognised on this adjustment with the corresponding entry posted to profit and loss reserves.
The movement between the loss at the 1 January to 31 December 2014 was posted to the profit and loss thereby increasing profits by CUXXX. Deferred tax of CUXXX was recognised in the profit and loss account on this movement.
AND WHERE APPLICABLE IF CONTRACTED RATES USED TO RETRANSLATE FOREIGN CURRENCY BALANCES AT THE YEAR END DATE
An adjustment at the date of transition of CUXXX and CUXXX was made to reduce debtors and creditors respectively so as to show the foreign currencies at the year-end spot rate as opposed to the contracted rate. The net impact was posted to profit and loss reserves brought forward. Deferred tax of CUXX was also recognised on this balance.
For the year ended 31 December 2014, CUXXX and CUXXX was made to reduce debtors and creditors respectively so as to show the foreign currencies at the year-end spot rate. The net impact was posted to foreign exchange costs in the profit and loss. Deferred tax of CUXXX was recognised in the profit and loss for the tax effect on the movement between the prior year adjustment and the current year end adjustment.
| Under old Irish GAAP the company was permitted to recognise foreign currency sales at the forward contract rate where forward foreign exchange contracts had been taken out by the company. FRS 102 however does not permit the use of the forward contract rate instead the foreign currency sale must be recognised and retranslated at the transaction rate at the time of sale. As a result on transition to FRS 102 a transition adjustment was recognised in the comparative year (year ended XX/XX/XX) to increase turnover by CUXXX to CUXXXX and increase administrative expenses by CUXXXX to reflect turnover at the transaction rate. | ||||
| Under old Irish GAAP the company retranslated year end monetary assets and liabilities at the average forward foreign currency contract rates that covered the net foreign currency exposure where such forward contracts existed. FRS 102 does not permit the year end monetary assets to be retranslated at the average forward contract rates instead they must be measured at the year end spot rate and the forward foreign currency contracts are required to be fair valued on the balance sheet. As a result a transition adjustment was recognised: | ||||
| – at XX/XX/XX to decrease the creditors balance by CUXXX, decrease the trade debtors balance by CUXXXX and decrease the prepayment balance by CUXXX with a corresponding adjustment to increase administrative expenses by CUXXXXX to restate these monetary foreign currency balances to the spot rate. This also resulted in a deferred tax asset being recognised of CUXXXXX on the adjustment with the corresponding credit (decrease in tax) being recognised in the tax line in the profit and loss account. | ||||
OR WHERE HEDGE ACCOUNTING IS ADOPTED
The company uses financial instruments to hedge the company’s exposure to currency fluctuations. As these meet the requirements for hedge accounting and can be treated as a cash flow hedge under FRS 102, the movement in the fair value of the hedge is accounted for through reserves. As a result, at 1 January 2014 the fair value of such derivatives at that date was CUXXX. This asset was recognised on the balance sheet and the adjustment posted to the cash flow hedge reserve.
At 31 December 2014, the fair value of CUXXX was recognised in the balance sheet with the movement on the prior year posted to other comprehensive income and then to the cash flow hedge reserve.
OR
| Use of contracted rate | ||||
| Under old Irish GAAP the company was permitted to recognise foreign currency sales at the forward contract rate where forward foreign exchange contracts had been taken out by the company. FRS 102 however does not permit the use of the forward contract rate instead the foreign currency sale must be recognised and retranslated at the transaction rate at the time of sale. As a result on transition to FRS 102 a transition adjustment was recognised in the comparative year (year ended XX/XX/XX) to increase turnover by CUXXX to CUXXXX and increase administrative expenses by CUXXXX to reflect turnover at the transaction rate. | ||||
| Under old Irish GAAP the company retranslated year end monetary assets and liabilities at the average forward foreign currency contract rates that covered the net foreign currency exposure where such forward contracts existed. FRS 102 does not permit the year end monetary assets to be retranslated at the average forward contract rates instead they must be measured at the year end spot rate and the forward foreign currency contracts are required to be fair valued on the balance sheet. As a result a transition adjustment was recognised: | ||||
| – at XX/XX/XX to decrease the creditors balance by CUXXX, decrease the trade debtors balance by CUXXXX and decrease the prepayment balance by CUXXX with a corresponding adjustment to increase administrative expenses by CUXXXXX to restate these monetary foreign currency balances to the spot rate. This also resulted in a deferred tax asset being recognised of CUXXXXX on the adjustment with the corresponding credit (decrease in tax) being recognised in the tax line in the profit and loss account. | ||||
|
Derivatives |
||||
| Under old Irish GAAP there was no requirement to fair value open forward foreign exchange contracts on the balance sheet instead these were only required to be disclosed (recognised on an accruals basis). FRS 102 requires these derivatives to be fair valued on the balance sheet and recognised in the profit and loss account unless hedge accounting is applied by the company in which case the effective portion is recognised in other comprehensive income until the probable/contracted transaction occurs at which time the amount previously recognised in OCI is transferred to the profit and loss account. The ineffective portion of the hedge is recognised in the profit and loss account immediately. On transition to FRS 102 the company adopted hedge accounting and an adjustment was made to: | ||||
| – Recognise these derivatives at fair value at the 29 December 2014 that being an asset of CUXXXX and a liability of CUXXXX which a corresponding net credit/increase of CUXXXX in the cash flow hedge reserve on the balance sheet. A net deferred tax liability of CUXXXX was also recognised on the balance sheet with the corresponding debit/decrease in the cash flow hedge reserve on the balance sheet. | ||||
| – Recognise these derivatives at fair value at the XX/XX/XX that being an asset of CUXXXX with a corresponding credit/profit of CUXXXXX recognised in other comprehensive income/Statement of Comprehensive Income for the effective portion and subsequently in the cash flow hedge reserve and a credit/profit of CUXXXXX recognised in administrative expenses for the ineffective portion. A deferred tax liability of CUXXXXX was also recognised on the balance sheet with a debit of CUXXXX recognised in other comprehensive income/Statement of Comprehensive Income and subsequently in the cash flow hedge reserve and the remaining CUXXXX recognised in the tax line in the profit and loss account. The deferred tax CUXXXX recognised at XX/XX/XX was also derecognised to other comprehensive income/Statement of Comprehensive Income and the cash flow hedge reserve in the year. | ||||
35.24.2.4.1.19 Traded investments
UK and Irish GAAP
Under previous UK and Irish GAAP entities could carry traded investments in shares at cost.
FRS 102
Under Section 11 of FRS 102, such investments must be carried at their fair value with the movement in fair value recognised in the profit and loss. Section 29 also requires deferred tax to be recognised on the difference between the tax value and the carrying amounts.
Impact
On transition to FRS 102 on 1 January 2014, the carrying value of financial assets which were actively traded on a stock exchange was increased by CUXXX with the corresponding amount being posted to profit and loss reserve. Deferred tax of CUXXX was recognised on this adjustment with the corresponding amount posted to profit and loss reserves brought forward.
At 31 December 2014, the carrying value of financial assets which were actively traded on a stock exchange was increased by CUXXX with the corresponding amount being posted to the profit and loss. The deferred tax liability was increased by CUXXX at 31 December 2014 to reflect the difference between the tax value and the carrying amount at that date.
35.24.2.4.1.20 Computer software
UK and Irish GAAP
Under previous UK and GAAP, website development costs and software were classified as property, plant and equipment.
FRS 102
Website development costs and software where the software is not an integral part of the hardware is required to be classified as intangibles under FRS 102.
Impact
Computer software, with a book value of CUXXX at 1 January 2014 has been reclassified from property, plant and equipment to intangible assets. The amount reclassified at 31 December 2014 was CUXXX. There is no impact on the profit or equity.
35.24.2.4.1.21 Prior year adjustment – material error
The prior year adjustment is due to the omission of inventory located in an outside warehouse being excluded from the inventory at 31 December 2014 and 31 December 2013. The value of the inventory at 31 December 2014 was CU100,000 and the value of the inventory at 31 December 2013 was CU95,000. The financial statements for 2014 has been restated to correct this error.
The prior year adjustment resulted in an increase to the inventory balance at 31 December 2013 and 2014 of CU95,000 and CU100,000 respectively. This has resulted in the cost of sales for 31 December 2014 year end increasing by CU5,000 and the profit and loss reserves increasing by CU85,500 being the net of tax adjustment. The current tax liability in the comparative year has increased by CUXXX as a result of this adjustment.
35.24.2.4.1.22 Statement of cash flows
UK and Irish GAAP
Under UK and Irish GAAP, cash flows were presented separately for operating activities, returns on investment and servicing of finance, taxation, capital expenditure and financial investment, acquisitions and disposals, equity dividends paid and financing.
FRS 102
Under FRS 102, cash flows are required to be shown separately for three categories only, namely, operating, investing and financing. Additionally the cash flow statement reconciles to cash and cash equivalents whereas under previous UK and Irish GAAP the cash flow statement reconciled to cash. Cash and cash equivalents are defined in FRS 102 as “cash on hand and demand deposits and short term highly liquid investments that are readily convertible to known amounts of cash and that are subject to an insignificant risk of changes in value” whereas cash is defined in FRS 1 as “cash in hand and deposits repayable on demand with any qualifying institution, less overdrafts from any qualifying institution repayable on demand”.
Impact
Cash flows from taxation and returns on investments and servicing of finance shown under UK and Irish GAAP are included as operating activities under FRS 102.
[/et_pb_text][/et_pb_column][et_pb_column type=”1_4″][et_pb_toggle _builder_version=”3.1.1″ title=”Practical Examples”]
Examples
Example 3: compliance statement on adoption of FRS 102.
Example 5: Acquisition not resulting in a change of control after date of transition.
Example 6: Disposal resulting in no change in control in the subsidiary after date of transition.
Example 12: Previous GAAP revaluation as deemed cost.
Example 13: Fair value as deemed cost.
Example 14: Revaluation option chosen under old GAAP, reverting to the cost model on transition.
Example 16: Adoption of fair value through profit and loss on transition
Example 17: Adoption of fair value through other comprehensive income on transition
Example 18: Lease incentives since date of transition.
Example 19: Extract from the accounting policy note.
Example 20: Extract from the notes to the financial statements – Transition exemption rate.
Example 21: FRS 102 Principle Adjustments.
[/et_pb_toggle][/et_pb_column][/et_pb_row][/et_pb_section]