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[/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” text_font_size=”14″ use_border_color=”off” border_color=”#ffffff” border_style=”solid”] [button link=”http://www.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” text_font_size=”14″ use_border_color=”off” border_color=”#ffffff” border_style=”solid”] [button link=”https://uk.frs102.com/members/premium-toolkit/section-14/” type=”big” color=”red”] Return to Section 14 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”]Fair value model
Extract from FRS102: Section 14.9-14.10A
14.9 When an investment in an associate is recognised initially, an investor that is not a parent, that chooses to adopt the fair value model, shall measure it at the transaction price.
14.10 At each reporting date, an investor that is not a parent, that chooses to adopt the fair value model, shall measure its investments in associates at fair value, with changes in fair value recognised in other comprehensive income in accordance with paragraphs 17.15E and 17.15F, using the fair value guidance in paragraphs 11.27 to 11.32. An investor using the fair value model shall use the cost model for any investment in an associate for which it is impracticable to measure fair value reliably without undue cost or effort.
14.10 A The investor shall recognise dividends and other distributions received from the investment as income without regard to whether the distributions are from accumulated profits of the associate arising before or after the date of acquisition.
OmniPro comment
Where the fair value model is chosen, the following rules apply:
- Fair value movements are recognised in other comprehensive income/revaluation reserve where the movement is positive unless previous devaluations have been recognisesd in the profit and loss in which case they are recognised in the profit and loss up to the amount previously recognised in the profit and loss and after that to other comprehensive income; and
- Fair value movements which are negative are first set against the revaluation reserve and where this is reduced to nil, they are then posted to the profit and loss.
All transaction costs are expensed as incurred. The revaluations should be performed on a regular basis so that the carrying amount is not materially different from its fair value. Where fair value can no longer be measured it is then stated at the carrying value at that time which is deemed to be its original cost.
Deferred tax
As there will be fair value adjustments, there will be a deferred tax impact for the differences between the tax base and the carrying amount. The deferred tax adjustment should follow the initial adjustment to reflect the new carrying amount i.e. on initial recognition the deferred tax impact will be posted to other comprehensive income. The deferred tax rate to be used will be the rate that it is expected that the investment will be settled for. Where the investment is to be held for dividend purposes then the trading tax rate should be used, however where it is expected the investment will be sold it should be measured at the capital gain tax/sales tax rate. In reality it may more than likely be the capital gains tax rate.
Fair value through the profit and loss
Section 11 provides the accounting treatment where fair value through the profit and loss is chosen. Please refer to section 11 of this website for further details.
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