Welcome FRS 102 CIMA Webinar December 2014 CIMA FRS 102 slides... · Welcome FRS 102 CIMA Webinar December 2014 Presented by: ... Investing activities Capital expenditure & financial

1

Making your practice compliant, efficient and profitable

0845 450 5555

www.swat.co.uk

Welcome

FRS 102 CIMA Webinar

December 2014

Presented by:

Adrian Gibbons BSc ACA

2

The Reporting Framework 2015 & 2016

FRS 102 Overview

FRS 102 Section 3 Financial

Statements

FRS 102 Section 5 Statement of

Comprehensive Income

FRS 102 Section 6 Changes to Equity

FRS 102 Section 7 Cash Flows

Contents

3

FRS 102 Section 35 Transition

FRS 102 Section 12 Other Financial

Instruments

FRS 102 Section 29 Income Tax

FRS 102 Section 19 Goodwill

Contents

2

4


FRS 102 Overview


Statements





Contents

5

Accounting Framework NOW

Small Co

FRSSE

Micro

SSAPs & FRSs

Med & Large Co

Page 3

6

Accounting Framework NOW

Small Co

FRSSE

Micro

SSAPs & FRSs

Med & Large Co

Page 3

Small Company Limits

Turnover < £6.5M

Gross Assets< £3.26M

EEs < 50

Micro Entity Limits

Turnover < £632K

Gross Assets < £316K

EEs < 10

3

7

Accounting Framework

1/1/ 2015

Small Co

FRSSE 2015

Micro entity bits

Micro

FRS 102 FRSSE 2015

Medium & Large Co

Page 4

8


1/1/2016

Small Co

FRSME

Based on FRS 102

Micro

FRS 102 Reduced disclosure

Medium & Large Co

Page 4

9


1/1/2016

Small Co

FRSME

Micro

FRS 102 Reduced disclosure

Medium & Large Co

Page 4

Small Company Limits

Turnover < £10.2M

Gross Assets < £5.1M

EEs < 50

4

10

A Basic Balance Sheet

Slide Only

Property Plant & Equipment

Stock & WIP

Trade Receivables

Trade Payables

Ordinary Loans

11


FRS 102 Overview


Statements





Contents

12

FRS 102

Page 6

The Financial Reporting Standard

Applicable in the UK & Republic of

Ireland

Issued March 2013 - Updated August

2014 (Further Update 2015?)

AP beginning on or after

1 January 2015

5

13

FRS 102 - Formats

Page 6

Topic – by sections

Public benefit entities

Prefix PBE

Some sections have implementation

guidance

14

FRS 102 – Transition Rules

Page 6

UK GAAP FRS 102 FRS 102

Section 35

15


FRS 102 Overview


Statements





Contents

6

16

Section 3:

Financial statement presentation

An entity may use titles for the

financial statements other than those

used in this FRS as long as they are

not misleading

CA 06 Headings

Page 7

17

Section 3:

Financial statement presentation

Accounts must say that they comply

with FRS 102

Explicit & Unreserved

This would be Note 1 after the primary

statements

Page 7

18

Section 3:

Complete set of Financial Accounts

Either

Single statement of comprehensive

income

Or

Income statement & statement of other

comprehensive income

A statement of financial position at the

reporting date

Page 9

7

19

Section 3:

Complete set of Financial Accounts

Cash flow

Notes

Compliance with FRS 102

Significant accounting policies

Other information

Each statement must have equal

prominence

Page 10

20


FRS 102 Overview


Statements





Contents

21

Section 5: Example AB Limited

Single Statement

Page 12

8

22


Single Statement

Page 12

23


Two statements

Page 13

24


Two Statements

Page 13

9

25

Section 5: Exceptional Items

Page 15

Exceptional not used

No explicit requirement to disclose on

the face of the statement of

comprehensive income

FRS 102 Requirement to disclose

material items

26


FRS 102 Overview


Statements





Contents

27

Section 6: Changes in equity & statement

of income & retained earnings

Statement of changes in equity

presents: Profit or loss for the period

Other comprehensive income for the period

Changes in accounting policies

Material errors

Investments by and dividends & other

distributions to shareholders

Page 16

10

28

Section 6:Example

Page 17

29

Section 6:Example

Page 17

30

Section 6: Statement of income &

retained earning

Page 17/18

Simplified statement to replace full

statement of changes in equity

Used if the only changes are:

Profit or loss for the period

Payment of dividends

PYA

Combines the statement of income

with the retained earnings statement

11

31


retained earning Example

Page 18

32


retained earning Example

Page 19

33


FRS 102 Overview


Statements





Contents

12

34

FRS 102 FRS 1

Operating activities Net cash inflow from operating activities

Taxation

Investing activities Capital expenditure & financial investment

Acquisitions and disposals

Financing activities Financing

7. Statement of cash flows

Page 19/20

Equity dividends paid

Equity dividends paid

Ret. on investments & servicing of finance

Ret. on investments & servicing of finance

35


Page 20

Cash and cash equivalents

36


Page 20/21

Direct or indirect methods allowed

Need to convert cash flow statement

for prior year on conversion

Other key points:

Disclosure of cash unavailable for use

with management commentary

No reconciliation of movement in cash to

movement in net debt

13

37



Instruments



Contents

38

UK GAAP

FRS 102 FRS 102

Sec 35

Transitional Arrangements

Page 22

39

First time adoption of FRS 102

Page 22

Mandatory for Accounting Periods

starting on or after 1 January 2015

Section 35

Applies to the first accounts on which the

entity makes an explicit and unreserved

statement of compliance with FRS 102

14

40

First time adoption of FRS 102

Page 23

Transition date

Start of the previous period for the

comparatives

41

Example Entity X Limited

Page 23

UKGAAP to FRS 102

Y/E 31 December 2015

Transition date

1 January 2014

42

Para 7 Section 35 FRS 102

Page 23

Opening statement of position

Measures all assets & liabilities in

accordance with FRS 102

15

43


Page 23

Some assets and liabilities may have

different values under FRS 102 when

compared to the old accounting

treatment

44


Page 23

Example

Investments at cost may need to be

valued at fair value

Deferred tax will be needed for any asset

that has been revalued

45

Entity X Limited

Deferred Tax Adjustment

Page 23

Property revalued under FRS 15

Has a revaluation reserve

Deferred tax now needs to be

recognised on the revaluation gain

16

46

Entity X Limited

Deferred Tax Adjustment

Page 23/24

Must account for the deferred tax at

the transition date

1 January 2014

Dr Revaluation Reserve

Cr Deferred Tax Provision

47

Entity X Limited

Fair Value Adjustment

Page 24

Forward Foreign Exchange contract

12 November 2013

Purchase 220K euros at 1.1

Dated 12 February 2014

Not recognised under UKGAAP

48

Entity X Limited

Fair Value Adjustment

Page 24

Under FRS 102 this needs to be valued

at the transitional date at fair value

Bank Fair Value 1 January 2014

= £20K

Transitional TB will need to recognise

the new asset at 1 January 2014

What is the tax impact of this?

17

49

Change of Accounting Policy

Page 24

Practical Issues

Accounting software may not cope with

the PYA

The preparation of the accounts for the

first FRS 102 period may take longer and

cost more

Directors need to plan in advance for the

impact of FRS 102

50

Disclosures

Page 25

An entity must explain how the

transition from current UKGAAP to

FRS 102 has affected its reported

financial position

Three reconciliations are required

51

Disclosures

Page 25

An equity reconciliation

At the transitional date and

At the end of the last period to be

prepared under the old UKGAAP

18

52

Disclosures

Page 25

A profit & Loss account reconciliation

for the last period completed under the

old UKGAAP

Examples of this disclosure are given

later

53

Disclosures – X Limited

Page 25


Equity reconciliation’s as at

I January 2014 & 31 December 2014

P&L account reconciliation


54

Prohibition on Retrospective

Restatement

Page 26

Section 35 has 5 areas where

retrospective adjustment to previous

transactions are not permitted on

transition

19

55

Prohibition on Retrospective

Restatement

Page 27

Accounting Estimates

Any changes to accounting estimates

should not trigger any PYA

56

Accounting Estimates Example

Page 27

31 December 2013 – X Limited

Large debtor = £100K

Provision made for £50K

Summer 2014 the debtor goes bust

57

Accounting Estimates Example

Page 27

At the transitional date of 1 January

2014

Should a full provision be made as the

entity now knows that £50K is not

adequate?

No – no retrospective adjustment to an

estimate is permitted

20

58

Exemptions from – recognition or re-

measurement of assets and liabilities

Page 28

17 exemptions

Entities may choose not to re-measure

some assets or liabilities

At the transitional date

Transactions after this date may need

to be re-stated

59



Page 28

Dormant companies

May elect to retain its accounting policies

for reported assets, liabilities and equity

at the date of transition

Only adopt FRS 102 when those balances

change or no longer dormant

60



Page 29

Associates, Joint Ventures, Business

Combinations

Can elect not to apply Section 19 to

business combinations effected before

the date of transition

Particularly relevant to fair values and

goodwill A

B

D E

C

F

21

61

Example X Limited

Page 29

X Limited made an acquisition during

2013


Fair value based on old UKGAAP

Goodwill has a life of 10 years

A

B

D E

C

F

New

Business

62

Example X Limited

Page 29


No need to restate fair values as at 1

January 2014 as section 19 does not

need to be applied

Must consider if 10 years is a reliable

estimate for goodwill

If not must use 5 years from the

transitional date

63

Example X Limited

Page 30

If the acquisition had been made after

1 Jan 2014

Need to consider the fair values under

FRS 102

Adjust both the 2014 and 2015 year

end results

Goodwill could be over 10 years if

reliable estimate if not then 5 years

But may become 10 years in 2015

22

64

Example X Limited

Page 30/31

This exemption only applies to

goodwill

Other intangibles are dealt with under

Sec 19 – no exemption here

65



Page 31

Fixed Assets – Deemed Cost

Property, plant & equipment

Investment properties

Some intangible assets – active market

fair value

66



Page 31

Deemed cost

Fair value

Old UKGAAP revaluation

Before or on the date of transition

Deferred tax will be needed as well

23

67

X Limited - Example

Page 32

31 December 2000

Adopted a policy of revaluation of

property

At this stage they have one property

Cost = £50K

2000 value = £1.2M

68

X Limited - Example

Page 32

During 2008 the directors decided that

the revaluation policy was onerous

and not worth the cost

But unable to change without going

back to historical cost

31 December 2013 value = £1.65M

69

X Limited - Example

Page 32

FRS 102 – gives directors the option to

go back to cost

£1.65M can be used as the deemed

cost at 1 Jan 2014

Revaluation reserve stays and is used

to reduce depreciation

Deferred tax issue

24

70

X Limited - Example

Page 32

Expensive machines

These can be revalued and this used

as deemed cost under FRS 102

transitional rules

Two options

Revalue the machines and then use

deemed cost

Fair value at 1 January 2014 when

adjusting to FRS 102

71



Page 34

Exemptions relating to Leases

Leases can be assessed according to the

terms and conditions existing at the

transitional date

72

Leases Example

Page 34

X Limited – 20 year lease 1 January

2012

Periodic reviews every 5 years for rent

Lease incentive is spread over 5 years

Under FRS 102 the lease incentive is

spread over 20 years

25

73

Leases Example

Page 34

The exemption allows X Limited to

choose

It can continue with the 5 year

incentive policy or apply FRS 102 and

move to 20 years

74



Page 35

Share-based payment transactions

Some exemptions from section 26 if the

equity instruments are granted before the

transition date

Not relevant to UKGAAP but would be

useful for companies that are going from

the FRSSE to FRS 102

May be highly relevant under FRS 102

Lite

75

DISCLOSURE OF TRANSITIONAL ISSUES

AND

ADJUSTMENTS

26

76

Reconciliation disclosure under

FRS 102

Page 35

No examples or guidance on layout in

FRS 102

The notes give an example

reconciliation for X Limited using the

information presented on X Limited so

far

Transition date = 1 January 2014

77 Page 36

78 Page 21

27

79

Notes

Page 37/38

The example solution also presents

the notes to the reconciliations that

explains the change in accounting

policy

Tax impact of this on the corporation

tax computation?

80

Format 2

Page 38

81

Format 2

Page 39

28

82



Instruments



Contents

83

Sale of a non-financial items such as a

commodity, inventory or property

plant and equipment are excluded

from Section 12

Thus a contract to buy a property at a

date in the future (off plan sale) is not a

treated as a financial instrument under

this section

Other Contracts Excluded

Page 41

84

Example – Farming Client

Sells his wheat forward under a

commodity contract – not a financial

instrument

Grants an option to a purchaser to buy

wheat at some date in the future – the

option could be traded for cash under the

options market – is a financial instrument

Other Contracts Excluded

Slide Only

29

85

Section 11 & 12 should be considered

together

All clients should be reviewed and

their financial instruments classified

as either basic or other

Some financial instruments are

currently not recognised under UK

GAAP so care is needed

Financial Instruments

Page 41

86

The entity must become a party to the

contractual provisions of a financial

instrument

It then recognises a financial asset or

a financial liability

Recognition & Measurement

Page 42/43

87

Recognised at Fair Value

Fair Value = transaction price

Initial Recognition

Page 43

30

88

Subsequent measurement

Page 43

Section 12 Financial Instruments

Fair Value – through profit or loss

89

Subsequent measurement

Page 43

Exceptions

Equity instruments that are not publically

traded and fair value cannot otherwise be

reliably measured

Cost less impairment

Hedging instruments which are in a

designated hedging relationship

90

What is Fair Value?

Page 44

A quoted price for an identical asset in

an active market

Price of a recent transaction for an

identical asset provided no significant

change to economic circumstances

A valuation method

31

91

Example

Forward Foreign Currency

Page 47/48

92

Example


Page 48

Accounting for the financial instrument at initial

recognition and at the year end

93

Example


Page 48

The order is placed for the asset so the liability to

pay is recognised

32

94

Example


Page 48

Settlement of the creditor and realisation of the

forward foreign exchange contract

95

Example


Page 48

Realisation of the forward foreign exchange

contract gain on the transaction

96

Example


Slide Only

Under old UK GAAP how would the

transaction have been dealt with?

The purchase of the asset would have

been at the rate in the forward foreign

exchange contract

33

97

Example


Slide only

This transaction would have been at Euro 1.5 to £1

Thus the value of the asset would have been £333.

Under FRS 102 this shows an uplift in the asset

value of £17

98

Example


Slide only

Under FRS 102 the same movement is

recognised through the profit and loss

account:

Fair value gain to year end = £3

Fair value gain at payment = £34

Total value of FI = £37

Loss on payment for asset = (£20)

Net gain over the transaction = £17

99

Directors personal guarantees

Page 49

Are these a financial instrument?

No

The company is not a party to this

agreement

The agreement is a related party

transaction and should be disclosed

34

100



Instruments



Contents

101

FRS 102 Deferred Tax

Page 50

The changes to Deferred Tax will have

a significant impact on most clients

under FRS 102

FRS 102 – adopts the deferred tax plus

approach

102

Deferred Tax – Basic Principle

Page 51

The recognition of future tax

consequences of transactions and

events reported in the current years

financial statements

Timing differences

Tax equalisation account

Matching concept

35

103

FRS 102 Section 29: Income Tax

Page 51

Covers

Current tax charge

Deferred tax charge

VAT (was SSAP 5)

Adopts the same basic principle as

FRS 19 regarding deferred tax

104

FRS 19 Fixed Assets Exemption

Page 53

No deferred tax on a valuation unless

Binding agreement to sell &

Recognised gains or losses are expected

to arise on sale

105

FRS 19 Fixed Assets Exemption

Page 53

No deferred tax on a valuation unless

Binding agreement to sell &

Recognised gains or losses are expected

to arise on sale

Para 29.15 Sec 29

Outlaws this exception

Deferred tax calculated using tax rates &

allowances that apply to the sale of the

asset

36

106

Investment Property Example

Page 54

Year end 31 December 2015

Investment property valued at:

December 2015 = £110K

December 2014 = £100K

1 Jan 2014 = £95K

The property was purchased

December 2000 for £50K

The companies tax rate is 20%

107

Transitional Date Adjustment

Page 54

Tax on the gain at the transitional date

Cost = £50,000

Indexation = £23,600

(indexation allow .472)

Adjusted base cost = £73,600

Gain = £21,400

Tax @ 20% = £4280

108

Transitional Date Adjustment

Page 54

Deferred tax at transitional date would

be = £4280

Adjustment 31 December 2014

£95K to £100K = £5K x 20%

Deferred tax = £1K

37

109

Year ended 31 December 2014

Page 54

Balance at 31/12/2014 = £5280

Profit & Loss Account to 31/12/2014

Gain on investment property = £5K

Deferred tax on gain = (£1k)

110

Year ended 31 December 2015

Page 54

Balance Deferred tax 31/12/15 = £7280

Profit & Loss Account

Gain on investment property = £10K

Deferred tax on gain = (£2K)

111

Permanent & Temporary Differences

Page 55

Deferred tax is not provided on

permanent timing differences

Temporary differences

Accelerated capital allowances

Accrued pension liabilities

Intra-group profits

38

112



Instruments



Contents

113

Section 19 Business Combinations &

Goodwill

Page 60

Accounting treatment for all business

combinations except:

Joint Ventures – Section 15

Acquisitions of a group of assets that are

not a business

Public Benefit Entities – Section 34

114

Accounting Treatment for Goodwill

Page 61

Goodwill Cost Value of assets,

liabilities and contingent

liabilities as valued

under this section

39

115

Accounting Treatment for Goodwill

Page 61

Subsequent Accounting Treatment

Goodwill has a finite useful life

Amortised on a systematic basis

If the entity cannot make a reliable

estimate of the UEL then goodwill shall

be written off over not more than 5 years

Making your practice compliant, efficient and profitable

0845 450 5555

www.swat.co.uk

This course was:

FRS 102 CIMA Webinar

December 2014

Presented by:

Adrian Gibbons BSc ACA

Documents

Welcome FRS 102 CIMA Webinar December 2014 CIMA FRS 102 slides... · Welcome FRS 102 CIMA Webinar December 2014 Presented by: ... Investing activities Capital expenditure & financial