FRS 102 came into effect for accounting periods commencing on or after 1 January 2015.
The following entities can apply FRS 102:
- entities which are not required to apply IFRS;
- small entities; and
- micro-entities.
Small entities can also apply the disclosure simplifications of FRS 102 Section 1A (S1A) and micro entities can also apply FRS 102 S1A or FRS 105.
The accounting policy choices you apply could enable you to influence the strength of your balance sheet or simplify your accounting but care must be taken because they may also create earnings volatility.
Fundamental to FRS 102 is the concept of ‘Fair Value’. In some instances you may require expert advice to determine a fair value.
—FRS 102: Accounting policy choices
—FRS 102: Fair value
FRS 102: Accounting policy choices
The accounting policy choices you use in FRS 102 could enable you to influence the strength of your balance sheet or simplify your accounting but be careful, because they may also create earnings volatility.
Borrowing costs
These may be capitalised as part of the cost of a qualifying asset or written off as incurred. A qualifying asset takes a substantial period of time to get ready for its intended use or sale and could be property, plant and equipment, investment properties or inventories. The policy must be applied consistently to each class of qualifying asset.
Development costs
These may be written off as incurred or capitalised if certain criteria are met. It must be clearly demonstrated that the criteria have been achieved. The policy must be applied consistently to all expenditure that meets the criteria.
Fixed assets
Each class of property, plant and equipment, heritage asset and intangible asset (other than goodwill and exploration and evaluation assets (EEA)) may be measured at fair value less depreciation and impairment losses. Gains and losses are recognised in a revaluation reserve or, in certain circ*mstances, profit and loss. Alternatively, these assets can be measured at depreciated cost less impairment losses.
Financial instruments
An entity can choose to apply FRS 102 or the recognition and measurement principles of its international equivalent IAS 39 (as adopted in the UK) or IFRS 9 and the disclosure requirements of FRS 102. Public benefit entities may measure all concessionary loans made or received initially at the amount received/paid or at fair value.
Government grants
Entities may apply the performance model or the accrual model on a class-by-class basis. Under the performance model income is only recognised when any performance conditions are met. With the accrual model, income is recognised on a systematic basis over the periods in which the entity recognises the related costs.
Leased property interests
A property interest held under an operating lease may be classified and accounted for as investment property if the property would otherwise meet the definition of an investment property and the lessee can measure the fair value of the property interest without undue cost or effort on an on-going basis. This option is available on a property-by-property basis.
FRS 102: Fair value
Fundamental to FRS 102 is the concept of ‘Fair Value’. Fair value is the amount for which an asset, liability or equity instrument could be exchanged or settled between knowledgeable, willing parties in an arm’s length transaction. In some instances you may require expert advice to determine a fair value.
Property, plant and equipment
A class of assets may be measured at fair value. Whilst there are no fixed intervals when revaluations must be performed, they must be performed with sufficient regularity to ensure that the carrying value does not materially differ from its fair value at the reporting date.
Investment property
Investment property whose fair value can be reliably measured without undue cost or effort must be measured at fair value with gains and losses recognised in profit and loss.
Financial instruments
Under FRS 102 certain instruments must be measured at fair value with gains and losses recognised in profit and loss (eg interest rate swaps/options, forward contracts, commodity contracts, some debt instruments and investments in non-convertible and non-puttable shares that are publicly traded or their fair value can be estimated reliably).
Investments
In individual entity accounts, investments in subsidiaries, associates and jointly controlled entities may be held at cost less impairment or fair value with gains and losses recognised in a revaluation reserve or, in certain circ*mstances, profit and loss. A parent may also opt to recognise fair value gains and losses entirely in profit or loss.
Business combinations
Intangible assets whose fair value can be measured reliably need to be recognised separately from goodwill on acquisition ie intellectual property, customer contracts, relationships, in-process R&D.
Biological assets
A living animal or plant may be measured at fair value (if fair value can be measured reliably) with gains and losses recognised in profit and loss or held at depreciated historical cost. The policy must be applied consistently to each class of biological asset and its related agricultural produce.
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