[et_pb_section admin_label=”Header – All Pages” global_module=”1221″ transparent_background=”off” background_color=”#1e73be” 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=”||0px|”][et_pb_row global_parent=”1221″ admin_label=”row”][et_pb_column type=”4_4″][et_pb_post_title global_parent=”1221″ admin_label=”Post Title” 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)” title_all_caps=”off” use_border_color=”off” border_color=”#ffffff” border_style=”solid” title_font=”|on|||” title_font_size=”35″ custom_padding=”10px|||”] [/et_pb_post_title][/et_pb_column][/et_pb_row][/et_pb_section][et_pb_section admin_label=”Section” global_module=”1228″ fullwidth=”off” specialty=”off” transparent_background=”off” allow_player_pause=”off” inner_shadow=”off” parallax=”off” parallax_method=”off” custom_padding=”0px||0px|” padding_mobile=”on” make_fullwidth=”off” use_custom_width=”off” width_unit=”on” make_equal=”off” use_custom_gutter=”off” gutter_width=”3″][et_pb_row global_parent=”1228″ admin_label=”Row” make_fullwidth=”off” use_custom_width=”off” width_unit=”on” use_custom_gutter=”off” gutter_width=”3″ custom_padding=”0px||0px|” padding_mobile=”off” allow_player_pause=”off” parallax=”off” parallax_method=”off” make_equal=”off” parallax_1=”off” parallax_method_1=”off” column_padding_mobile=”on”][et_pb_column type=”4_4″][et_pb_text global_parent=”1228″ admin_label=”Text” background_layout=”light” text_orientation=”left” text_font_size=”14″ use_border_color=”off” border_color=”#ffffff” border_style=”solid”]
[/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-35/” type=”big” color=”red”] Return to Section 35 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”]Mandatory exceptions to retrospective application – derecognition
Extract from FRS102: Section 35.9(a)
35.9 On first-time adoption of this FRS, an entity shall not retrospectively change the accounting that it followed under its previous financial reporting framework for any of the following transactions:
(a) Derecognition of financial assets and financial liabilities: Financial assets and liabilities derecognised under an entity’s previous accounting framework before the date of transition shall not be recognized upon adoption of this FRS. Conversely, for financial assets and liabilities that would have been derecognised under this FRS in a transaction that took place before the date of transition, but that were not derecognised under an entity’s previous accounting framework, an entity may choose:
(i) to derecognise them on adoption of this FRS; or
(ii) to continue to recognise them until disposed of or settled.
OmniPro comment
Appendix I of FRS 102 defines derecognition as the removal of a previously recognised asset or liability from an entity’s statement of financial performance.
Where assets/liabilities were derecognised under old GAAP they cannot be re-recognised under FRS 102. It is likely that there were will not be many instances where this arise, however where it does this rule must be complied with.
Mandatory exceptions to retrospective application – accounting estimates
Extract from FRS102: Section 35.9(c)
35.9 (c) Accounting estimates
OmniPro comment
A change in accounting estimate cannot be adjusted retrospectively. For example if it transpires that a bad debt provision was misstated, an entity cannot post the correct bad debt provision to retained earnings at the date of transition instead this estimate is posted prospectively in the comparative period.
Likewise where previously fixed assets were depreciated over a set useful life and a reassessment was made at the date of transition an entity cannot post the difference into opening reserves on transition, instead the change of policy must be made in the comparative year and adjusted prospectively with the relevant disclosures included.
In essence it requires the estimates used under old GAAP to be used on the date of transition to FRS 102. It cannot consider subsequent events that came to light after the date the previous GAAP accounts were signed off.
Another example would be a provision for a loss on a court case which was included in old GAAP financial statements where it subsequently transpired after the date of signing the comparative and opening balance sheet financial statements that the entity did not lose and therefore resulted in the provision being overstated. In this case no adjustment is made instead this is washed through the following year e.g. if the provision was overstated at the end of the comparative period then it would not be adjusted instead it would be adjusted in the current period.
If on the other hand there was an error (as opposed to a change in estimate) then this would have to be adjusted retrospectively and disclosed as part of the transition adjustments.
Mandatory exceptions to retrospective application – discontinued operations
Extract from FRS102: Section 35.9(d)
35.9 (d) Discontinued operations.
OmniPro comment
Under FRS 102 in order for an operation/business to be disclosed as discontinued, the operation/business must have been disposed of (in relation to a sale) or have been closed (in relation to a termination) by the balance sheet date. FRS 102 also allows a subsidiary which was acquired exclusively with a view to resale to be shown as a discontinued operation.
This differs under old GAAP whereby an operation/business could be classified as discontinued if the sale or termination was completed within three months of the balance sheet date. A subsidiary which was acquired exclusively with a view to resale was not included in the definition of discontinued operations.
Section 35.9(d) mandates that where a business was previously considered a discontinued operation under old GAAP it is not adjusted on transition to new GAAP.
Mandatory exceptions to retrospective application – non-controlling interest
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)).
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) 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 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 CU1,300,000. 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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