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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.
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35.7 Mandatory exceptions to retrospective application – non-controlling interest
35.7.1 Extract from FRS102: Section 35.9(e)
35.9(e) Measuring non-controlling interests:
The requirements:
(i) to allocate profit or loss and total comprehensive income between non-controlling interest and owners of the parent;
(ii) for accounting for changes in the parent’s ownership interest in a subsidiary that do not result in a loss of control; and
(iii) for accounting for a loss of control over a subsidiary shall be applied prospectively from the date of transition to this FRS (or from such earlier date as this FRS is applied to restate business combinations—see paragraph 35.10(a)).
35.7.2 OmniPro comment
Although FRS 102 requires profit or loss and total comprehensive income to be allocated between non-controlling interest and owners of the parent, Section 35.9(e) of FRS 102 states that this should be applied prospectively from the date of transition. The split will need to be provided in the comparative and current year.
Section 22 requires that acquisitions or disposals in interests of subsidiaries that does not result in a change/loss of control after the transaction are accounted for as equity transactions. Under old GAAP 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. Section 35.9 of FRS 102 makes it clear that where such acquisitions or disposals occurred pre-transition date, they must not be restated instead this is applied prospectively. Hence where acquisitions or disposals have occurred in the comparative year included in the first set of FRS 102 financial statements a transition adjustment will be required.
Example 5: Acquisition not resulting in a change of control after date of transition
Prior to 1 January 2014, Parent A owned 55% of Company B which was consolidated in the financial statements. On 2 January 2014 the parent acquired the remaining 45% from the non-controlling party for CU300,000. The date of transition to FRS 102 is 1 January 2014. In the 2014 financial statements under old GAAP the parent calculated the goodwill acquired as a result of this transaction and reflected the additional fair value of assets and liabilities acquired at that date. Under old GAAP as a result of this transaction goodwill of CU200,000 was recognised and PPE uplift of CU100,000 was booked. The useful life of the PPE and goodwill is 10 years, hence the NBV of this goodwill and PPE was CU180,000 and CU90,000 at 31 December 2014. The NBV of this goodwill and PPE was CU160,000 and CU80,000 at 31 December 2015.
The transition journals required to show the correct treatment under FRS 102 in 31 December 2014 accounts are:
| CU | CU | |
| Dr Equity-Profit and Loss Reserves | 300,000 | |
| Cr Goodwill | 200,000 | |
| Cr Fixed Assets – PPE | 100,000 |
Being journal to reverse old GAAP posing
| CU | CU | |
| Dr Goodwill – Balance Sheet | 20,000 | |
|
Cr Goodwill Amortisation P&L (CU200,000/10yrs) |
20,000 | |
| Dr Fixed Assets PPE | 10,000 | |
|
Cr Depreciation P&L (CU100,000/10yrs) |
10,000 |
Being journal to reverse depreciation and amortisation charged for 2014 under old GAAP
An adjustment will also be required in 31 December 2015 financial statements to reverse any amortisation/depreciation charged on the additional goodwill/PPE revaluation if the consolidated accounts have already been produced. The journals will be the same as the above.
Example 6: Disposal resulting in no change in control in the subsidiary after date of transition
Parent A previously owned 100% of Company B which was consolidated in the financial statements for the year ended 31 December 2014. During the year the company disposed of 25% to a third party for CU300,000. The original cost of the investment in the individual entity accounts was CU1,300,000. The net assets of the subsidiary at the date of disposal was CU800,000 plus goodwill of CU50,000 in the consolidated accounts. Assume there were no fair value adjustments as the fair value of the net assets at the original date of acquisition were equal to the entity’s net assets.
The journals required to account for this transaction in the consolidated financial statements are:
| CU | CU | |
| Dr Profit on Disposal of 25% of Subsidiary in P&L | 87,500 | |
|
Cr Equity -Profit and Loss Reserves ((CU850,000*25%)= CU212,500 – CU300,000) |
87,500 |
Being journal to reflect disposal as an equity transaction and not show the profit on disposal in the consolidated financial statements.
An adjustment will also be required in the 2015 TB where a disposal took place during the year and consolidated financial statements have been prepared under old GAAP.
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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.
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