Section 28 – Transition to this FRS

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Section 28 – Overview

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Section Downloads

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Website Links

Section 28 Detailed Guide

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Download “Simple Transition Case Study - FRS 102 to FRS 105”

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Download “FRS 105 Micro Companies Regime Disclosure Checklist”

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Section 28: Transition to FRS 105

Section 28 deals with the exemptions available to first time adopters on transition to FRS 105 so as to make the transition easier on companies and when any adjustments should be posted on transition.

What are the key points?

An entity must determine the transition date and provide comparative information in respect of the prior period for all amounts presented in the financial statements.

An opening balance sheet is not required to be presented however these opening balances must apply FRS 105.

No requirement to include a reconciliation in the FRS 105 financial statements between the profit and opening equity reported under old GAAP/FRSSE/FRS 102 and FRS 105 for the opening balance sheet and the comparative period and therefore no reason for the transition adjustments to be disclosed.

The date of transition is the start of comparative period presented in the first set of FRS 105 financial statements. Adjustments are made at the start of that period to make the opening balance sheet compliant with FRS 105.

Adjustments are then made to the comparative period as presented under previous GAAP to make them compliant with FRS 105.

The main exemptions which are provided are:

A dormant entity as defined by the Companies Act can elect not to transition to FRS 105 until it moves from being a dormant entity as defined by the Act;
Elect not to apply Section 14 – Business Combinations and Goodwill to combinations prior to the date of transition;
An exemption to allow entities an exemption from Section 12.15 to determine the depreciated cost of each of the major components of an investment property at the date of transition to FRS 105. Where this exemption is applied, a first-time adopter shall apply the criteria below (note this is to be completed on a property by property basis):

Step 1: Determine the total cost of the investment property including all of its components. Where no depreciation had been charged under the micro entity’s previous financial reporting framework, this can be calculated by reversing any revaluation gains or losses previously recorded in equity reserves.

Step 2: The cost of land, if any, shall be separated from buildings.

Step 3: Estimate the total depreciated cost of the investment property (excluding land) at the date of transition to this FRS, by recognising accumulated depreciation since the date of initial acquisition calculated on the basis of the useful life of the most significant component of the item of investment property (e.g. the main structural elements of the building).

Step 4: A portion of the estimated total depreciated cost calculated in step 3 shall then be allocated to each of the other major components (i.e. excluding the most significant component identified above) to determine their depreciated cost. The allocation should be made on a reasonable and consistent basis.

Step 5: Any amount of the total depreciated cost not allocated under step 4 shall be allocated to the most significant component of the investment property.

Elect not to apply Section 26 – Share based payment transactions settled prior to the date of transition where they were accounted for under FRS 20/Section 26 of FRS 102;
Where a compound financial instrument was previously not accounted for as such under old GAAP/FRSSE/FRS 102 and the liability component has been settled then an exemption can be claimed not to account for same as a compound instrument;
Elect to treat lease incentives received prior to the date of transition under old GAAP rules i.e. these incentives continue to be released up to the first break clause;
Elect to include the cost of decommissioning liabilities as the cost of an item of property, plant and equipment at the date of transition as opposed to the date in which it arose;

Section 28 contains mandatory exceptions whereby first time adopters cannot change the accounting that it followed previously for any of the following transactions:

De-recognition of financial assets and liabilities;
Accounting estimates;

Ability not to restate where it is considered impracticable (only utilised in exceptional cases)

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