Illustrative Accounts
PREPARING FOR FRS 102 –
THE NEW UK GAAP
market leaders for financial training
Transition Limited
Illustrative financial statements
Illustrative Financial Statements
This document represents the text of the PowerPoint displays that are used during the
presentation of the seminar:
Preparing for FRS 102 – the New UK GAAP
It is subject to copyright law and should not be reproduced by any unauthorised person for their
own use, selling on to a third person or for presentation to other people.
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Transition Limited
Illustrative financial statements
These illustrative financial statements have been prepared to illustrate the key presentational and transitional
disclosure issues on moving from existing UK GAAP to FRS 102. The original accounting formats are prepared under
UK GAAP and are for the year ended 31 December 2014 but in practice you could use earlier accounts on which to
base your planning.
Note the model accounts do not include directors’ report or audit report since they are not directly covered by FRS
102. There are implications for the directors in that they should seek to ensure that the directors reports is not
inconsistent with the financial statements prepared under FRS 102. Similarly the auditor is required by Companies Act
2006 to report on whether the financial statements are consistent with the accounts.
On a similar basis, where a note to the financial statements is required by the Companies Act but not FRS 102, it is not
included in full e.g. staff cost, directors’ emoluments, audit fees etc.
The reason that some items are not going to change on the adoption of FRS 102 will be:
(a) Because they are required under the Companies Act and not accounting standards (included in green ink) or
(b) Because FRS 102 is the same as old UK GAAP.
The conventions used in these illustrative financial statements are as follows:
(a) We have used FRS 102 terminology throughout for the financial statements, and predominantly for items
within the financial statements.
For example, we refer to income statement and statement of other comprehensive income rather than profit
and loss account and statement of total recognised gains and losses. We refer to inventories and property,
plant and equipment rather than stocks and work in progress and tangible fixed assets.
It is important to remember, however, that the basic structure of the financial statements is driven by the
Companies Act formats;
(b) Where disclosure or other item is no longer required by FRS 102 it is struck through like this;
(c) New items are included in red type. Note that notes 37 -39 included under this category are only required in
the year of transition.
(d) Guidance notes are included within text boxes or as narrative notes in blue type.
Note that these are not intended to be comprehensive or model accounts. In particular
(a) Not all items which could be included are covered. The financial statements do not include a defined benefit
pension scheme nor share-based payments.
(b) Nor are all detailed disclosures, whether required by the Act or FRS 102 necessarily disclosed. In particular
the disclosures relating to financial instruments are not dealt with.
It is recommended that the first actual FRS 102 accounts are prepared using proprietary model accounts and accounts
disclosure checklists.
Transition Limited
Financial statements for the year ended 31 December 2014
CONTENTS
PAGE
Profit and loss account Income Statement
2
Statement of total recognised gains and losses Statement of other comprehensive income
3
Balance sheet Statement of financial position
4
Statement of changes in equity
5
Cash flow statements Statement of cash flows
6
Notes to the accounts
8
The page numbers and note numbers are for training / illustration purposes only, as in practice many
would drop out, as indicated in the text.
Company registration number: 122345577
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Transition Limited
Income Statement Profit and loss account for the year ended 31 December 2014
Section 5
Continuing operations
FRS 102 does not require
acquisitions
Total
Total
2014
£
2014
£
2013
£
Acquisitions
Note
TURNOVER
Cost of sales
GROSS PROFIT
Distribution costs
Administrative expenses
Value adjustments
Bad debt
Discontinued
operations
2014
£
2014
£
2
FRS 102 requires fair value adjustments on investment properties and
some financial instruments to be recognised in profit and loss account.
These could be include within the format heading Other Operating
Income or a new heading such as value adjustment. These would be
included within operating profit
OPERATING PROFIT (LOSS)
Profit (loss) on sale of fixed assets
Cost of fundamental reorganisation/restructuring
Profit (loss) on sale or termination of an operation
Profit (loss) on ordinary activities before interest
Interest receivable and similar income
Interest payable and similar charges
Other finance income
PROFIT (LOSS) ON ORDINARY ACTIVITIES BEFORE
TAXATION
Tax on profit on ordinary activities
The use of operating profit is not
required by FRS 102. If it is used it
must be used appropriately
5
9
FRS 3 requires exceptional items to be included in the relevant line
item apart from super exceptional items. FRS 102 does not use the
term exceptional items and there are therefore no super-exceptional
items.
FRS 102 does, however, allow additional lines if relevant to an
understanding e.g. the bad debts item highlighted above
10
FRS 102 requires
disclosure of the tax on
discontinued operations.
FRS 3 does not
PROFIT (LOSS) FOR THE FINANCIAL YEAR
The notes on pages 8 to 27 form part of these financial statements.
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Statement of other comprehensive income Statement of total recognised gains and losses for the year ended 31
December 2014
Section 5
2014
£
FRS 102 allows a single statement
approach
2013
£
Profit (loss) for the financial year
Unrealised surplus (deficit) on revaluation of freehold
properties
Unrealised surplus on revaluation of investment properties
Tax expense (note 10)
Under FRS 102 deferred tax is provided on these gains which continue to
be shown in the Statement of Other Comprehensive Income
Gains on investment properties are recognised in the income
statement under FRS 102. The gains may be recognised under other
operating income or an appropriate heading. Deferred tax has to be
provided.
Total recognised gains (losses) relating to the year/period
Prior year adjustment (as explained in note _____)
Total gains and losses recognised since last financial
statements
Under FRS 102, prior year adjustments are
reflected in the Statement of Changes in Equity,
not at the foot of the STRGL / SOCI
NOTE OF HISTORICAL COST PROFITS AND LOSSES
2014
£
2013
£
Reported profit on ordinary activities before taxation
Realisation of property revaluation gains (losses) of previous years
Difference between a historical cost depreciation charge and the actual
depreciation charge of the year calculated on the revalued amount
Historical cost profit on ordinary activities before taxation
Historical cost profit for the year retained after taxation, minority
interests, extraordinary items and dividends
There is no requirement for a reconciliation of
historical cost profits or losses
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Transition Limited
Statement of financial position Balance sheet as at 31 December 2014
Company registration number: 122345527
FRS 102
Section 4
2014
Note
FIXED ASSETS
Intangible assets See FRS 102 Sections 18 & 19
Tangible assets Property, plant and equipment See FRS 102
Section 17
Investment property See FRS 102 Section 16
Investments Financial assets See FRS 102 Sections 11 and 12
CURRENT ASSETS
Stocks Inventories FRS 102 Section 13
Debtors FRS 102 Section 11
(including £
due in more than 1 year, 2013 £
)
Investments Financial assets FRS 102 Sections 11 and 12
Cash at bank and in hand FRS 102 Sections 11
CREDITORS
Amounts falling due within one year FRS 102 Sections 11,12
and 22
£
2013
£
£
11
12
13
14
15
16
In most cases FRS 102 considers it
sufficient to include this
information in the notes (4.4A)
17
18
NET CURRENT ASSETS (LIABILITIES)
TOTAL ASSETS LESS CURRENT LIABILITIES
CREDITORS
Amounts falling due after more than one year FRS 102
Sections 11, 12 and 22
19
PROVISIONS FOR LIABILITIES FRS 102 Section 21
21
NET ASSETS
CAPITAL AND RESERVES
Called up share capital FRS 102 Section 22
Share premium account FRS 102 Section 22
Revaluation reserve FRS 102 Section 22
Profit and loss account FRS 102 Section 22
22
23
24
25
SHAREHOLDERS’ FUNDS
26
th
These financial statements were approved and authorised for issue by the Board on 17 July 2015
Signed on behalf of the board of directors
Harry Potter
HARRY POTTER
- Director
th
17 July 2015
The notes on pages 8 to 27 form part of these financial statements.
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Statement of changes in equity for the year ended 31 December 2014
Section 6
The Statement of changes in equity (SOCE) is introduced by FRS 102 and replaces the reconciliation of the
movement in shareholders’ funds required by FRS 3. Unlike that reconciliation which could be included within
the notes the SOCE is a primary statement.
Share Capital
Share
Premium
Revaluation
Reserve
Retained
earnings
Total
Balance at 1 January 2013 as
Under FRS 102, revaluation of investment
previously reported
property and listed investments will appear in
Under FRS 3 prior period
profit for the year and hence on retained
Prior period adjustment –
adjustments would have been
earnings.
change in accounting policy
shown at the foot of the
An entity is permitted to transfer to revaluation
STRGL, as well as in the
Prior period adjustment –
reserve (using Statement of changes in equity)
reconciliation of shareholders’
to emphasise that such gains are not realised.
correction of material error
funds
Alternatively a note could be included to explain
As restated
(see foot of table.)
Share issue during the year
Profit for the year
FRS 102 Section 22 requires the issue of shares to be recognised at fair value of the cash or other
resources received or receivable, net of direct costs of issue less any related income tax benefit.
Other comprehensive income
FRS 19 had no concept of tax being recognised in equity.
for the year
Transfers
FRS 102 does not give a format for the SOCE. It would be acceptable to show
Dividends
a single figure for net comprehensive income
Balance at 31 December 2013
Prior period adjustment –
change in accounting policy
Prior period adjustment –
correction of material error
Comparative figures are required and the convention under IFRS where
there is a columnar presentation such as the SOCE to present the
As restated
information in tabular form as illustrated here.
Share issue during the year
Profit for the year
Other comprehensive income
for the year
Transfers
Dividends
Balance at 31 December 2014
Included in retained earnings is £x (2013 £X) of profits which are not available for distribution as they are unrealised
FRS 102 6.4 permits the inclusion of a single statement of income and retained earnings where the only changes in
equity are profit or loss, payment of dividends, corrections of prior period material errors and changes in accounting
policy. Where any of the highlighted items appear a statement of income and retained earnings is not permitted.
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Statement of cash flows Cash flow statement for the year ended 31 December 2014
Note
Section 7
2014
£
2013
£
Reconciliation of operating profit to net cash inflow from
operating activities
The easiest way to show the revisions to the cash flow statement is to produce a separate
statement under FRS 1 on this page and one under FRS 102 on the adjacent page.
Operating profit
Depreciation charges
Increase in stocks
Increase in debtors
Increase in creditors
Note also that the notes to the Cashflow statement required by FRS 1 and included here
at notes 34 and 35 are not required by FRS 102.
Net cash inflow from operating activities
CASH FLOW STATEMENT
Net cash inflow from operating activities
30
Returns on investments and servicing of finance
Taxation
Capital expenditure
30
Equity dividends paid
Net cash inflow before use of liquid resources and
financing
Management of liquid resources
Financing
30
30
Increase in cash
FRS 1 requires a reconciliation of net cash flow to movement in net debt. This may be given, as here adjacent to the cash flow
statement or in the notes.
FRS 102 does not require a reconciliation of cash to net debt. Indeed net debt is not considered in FRS 102. However in Staff
Education Note 1 it was noted that a project undertaken by the Financial Reporting Lab of the FRC found that a majority of
investors use a net debt reconciliation or reconciliation of net cash flows to net debt when one is presented. The Lab encouraged
companies to consider how this might be relevant to their own circumstances and fi so enhance their reporting to meet investor
needs.
Reconciliation of net cash flow to movement in net debt
2014
2013
Increase in cash in the period
Cash repaying debenture
Cash paid to increase liquid resources
Change in net debt
Net debt at
20
Net debt at
20
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Statement of cash flows Cash flow statement for the year ended 31 December 2014
Cash flows from operating activities
Profit for the financial year
Adjustments for:
Depreciation of property plant and equipment
Amortisation of intangible assets
Profit on disposal of property, plant and equipment
Interest paid
Taxation
Decrease (increase) in trade and other receivables
Decrease (increase) in inventories
Increase (decrease) in trade payables
Cash from operations
Interest paid
Income taxes paid
Net cash generated from operating activities
This example cash flow statements is based on the illustrative
example in Staff Education Note 1 using the indirect method.
Note it starts with profit for the year which is defined as “the
total of the income less expenses, excluding the components of
other comprehensive income” and not operating profit. Hence
there are more adjustments than under FRS 1.
Cash flows from investing activities
Proceeds from sale of equipment
Purchases of property, plant and equipment
Purchase of intangible assets
Interest received
Net cash from investing activities
Note the treatment of the three highlighted items interest paid,
interest received and taxation.
(a) FRS 102 gives a choice for interest paid or received to
be included in cash from operations or in financing
and investing respectively. In this example we have
include interest paid in operations and interest
received in investing.
(b) Taxation has to be allocated to the relevant headings,
although FRS 102 indicates that it will primarily be
related to operations.
(c) The illustration assumes that the profit and loss
charge and cash payments are the same and therefore
no adjustment is required for non-cash movements
(d) The illustration differentiates between cash from
operations and +net cash generated from operating
activities for comparison with FRS 1.
Cash flows from financing activities
Issue of ordinary share capital
Repayment of borrowings
Dividends paid
Net cash used in financing activities
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents at the beginning of the year
Overdrafts may be included within
cash and cash equivalents where
repayable on demand and play an
integral part of the entity’s cash
managements (FRS 102 7.2)
Cash and cash equivalents at the end of the year
Components of cash and cash equivalents
Cash
Overdraft
Cash equivalents
This is the only note to the cash flow statement required by
FRS 102 Section 7 and could appear elsewhere. If cash is held
by the entity but is not available for use that should also be
disclosed.
Cash equivalents are short term, highly liquid investments
that are readily convertible into known amounts of cash and
are subject to an insignificant credit risk
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Transition Limited
Notes to the financial statements for the year ended 31 December 2014
1
STATUTORY INFORMATION
Transition Limited is a company domiciled in England and Wales, registration number 122345577. The registered
office is Hogwarts Castle, Somewhere, County, HW1 1GF.
FRS 102 3.24 requires disclosure of the legal form of the entity, its country of incorporation and the address of its
registered offices (or principal place of business if different from the registered office.
FRS 102 also requires disclosure of the nature of the operations and its principal activities unless disclosed in a
business review or similar document. Companies are required to include such disclosure in the directors’ report.
2
COMPLIANCE WITH ACCOUNTING STANDARDS
The accounts have been prepared in accordance with applicable accounting standards FRS 102. There were no
material departures from those that standards.
FRS 102 3.4 requires an unreserved statement of compliance with the standard in the notes. This could be
incorporated within the accounting policies note, or as here as a separate note.
3
ACCOUNTING POLICIES
Basis of preparation of financial statements
The principal accounting policies adopted in the preparation of the financial statements are set out below and have
remained unchanged from the previous year/period, and also have been consistently applied within the same
accounts.
In the year of transition, this paragraph will need to be replaced with an explanation of the transition. The highlighted
text is based on the illustrative text in Staff Education Note 13.
These financial statements for the year ended 31 December 2015 are the first financial statements that comply with
FRS 102. The date of transition is 1 January 2014.
The transition to FRS 102 has resulted in a small number of changes in accounting policies to those used previously.
The nature of these changes and their impact on opening equity and profit for the comparative period are explained
in notes and below.
This wording is not given in the Staff Education Note but appears sensible
The financial statements have been prepared under the historical cost convention as modified by the revaluation of
certain fixed assets. The presentation currency is £ sterling.
FRS 102 3.23 (d) requires disclosure of the presentation currency as defined in Section 30. This is defined as “The
currency in which the financial statements are presented.” It can be argued that the use of the £ sign for each column,
note etc. fulfils that requirement, or it can be included as a separate note as here.
The accounting policy notes which follow are those included under previous GAAP. On transition the policies will be
under FRS 102. The annotations in red in this section illustrate areas where change may be necessary. This is not an
exhaustive list of accounting policies or potential changes but for illustration purposes only.
Goodwill and intangibles
Goodwill is capitalised and has an indefinite life. It is not being amortised but is subject to annual impairment review.
To date no goodwill has been written off.
FRS 102 requires initial recognition at cost, and then gives an accounting policy choice of the cost model or the
revaluation model.
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Notes to the financial statements for the year ended 31 December 2014
FRS 102 requires goodwill to have a finite life. In the absence of a readily ascertainable useful life, useful life must not
exceed 5 years.
Since FRS 102 will result in the inclusion of more intangibles separate from goodwill, there may be a requirement for
more detailed accounting policy notes to cover inter alia, useful lives.
Research and development
Expenditure on research and development is written off against profits in the year in which it is incurred.
SSAP 13 requires research expenditure to be written off and gives a choice in relation to the recognition of
development expenditure as an intangible provided certain criteria are met. FRS 102 continues to permits such
capitalisation. IFRS for SME does not. IFRS requires it!
There is a transitional exemption in 35.10 (n) permitting the use of costs recognised under SSAP 13 as its deemed cost
at the date of transition. If used, this exemption should be referred to in the accounting policy.
There may be other internally generated intangibles which may be capitalised under FRS 102 18.8-10A
Property, plant and equipment Tangible fixed assets - depreciation and amortisation
Depreciation has been computed to write off the cost of tangible fixed assets over their expected useful lives using
the following rates:
Freehold land
Freehold buildings
Leasehold property
Plant and machinery
Fixtures and fittings
Motor vehicles
No depreciation
2% per annum of cost
equal instalments over the period of the lease
% per annum of cost/net book value
% per annum of cost/net book value
% per annum of cost/net book value
Other than for entities taking the option to use the revaluation model, FRS 102 is not expected to change depreciation
policies.
Note however that residual value is reassessed at the end of each accounting period, unlike under FRS 15. This may
impact on the amount of depreciation charged.
Where an entity takes advantage of the exemptions in FRS 102 35.10 to include fair value or previous revaluations as
deemed cost, this will need to be reflected in the accounting policy note.
Leasing
Tangible fixed assets Property, plant and equipment acquired under finance leases or hire purchase contracts are
capitalised and depreciated in the same manner as other tangible fixed assets. The related obligations, net of future
finance charges, are included in creditors.
Rentals payable under operating leases are charged to the profit and loss account on a straight line basis over the
period of the lease.
The benefits of lease incentives are recognised in profit and loss account over the shorter of the lease period and the
period to the next rent review at which rent is expected to be reset to market rates.
In general, it is expected that few lease classifications under SSAP 19 will be treated differently under FRS 102, but
lease agreements should be checked to confirm.
The accounting treatment under FRS 102 is the same as under SSAP 19.
FRS 102 requires lease incentives to be recognised over the term of the lease.
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Notes to the financial statements for the year ended 31 December 2014
If the entity takes advantage of either of the exemptions in FRS 102 section 35, this should be recognised in the
accounting policy notes. The exemptions relate to:
(a) lease incentives – the option to continue to treat incentives received on leases entered into before the date
of transition;
(b) arrangements containing a lease – the option to determine whether an arrangement contains a lease at the
date of transition, rather than at the date of commencement of the lease.
Investment property
Investment property is carried at market value fair value. Revaluation surpluses are recognised in the Statement of
Total Recognised Gains and Losses income statement. Deferred taxation is not provided on these gains as there is no
current intention to dispose of them at the rate expected to apply when the property is sold.
FRS 102 requires valuation at fair value, unless fair value cannot be obtained without undue cost or effort, gains to be
recognised in profit and loss and deferred tax to be provided.
Where fair value cannot be achieved without undue cost or effort investment property should be accounted for as
property, plant and equipment.
Where the entity takes advantage of the transitional exemptions in 35.10 (c) or (d) relating to use of fair value or
revaluation should be included in the accounting policy note.
Stocks (and work in progress) Inventories
Stocks (and work in progress) Inventories have been valued at the lower of cost and net realisable value estimated
selling price less costs to sell. In respect of work in progress and finished goods, cost includes a relevant proportion of
overheads according to the stage of manufacture/completion.
FRS 102 is unlikely to see a change in accounting policies from those adopted under SSAP 9, other than the changes in
terminology.
Note that construction contract work in progress is now dealt with in FRS 102 Section 23 : Revenue rather than in the
Inventories section, but again the accounting policy is unlikely to change.
Income recognition
Income is recognised when goods have been delivered to customers such that risks and rewards of ownership have
transferred to them.
The general view amongst commentators is that FRS 102 is unlikely to result in changes to income recognition
accounting policies, provided, of course that the entity’s policies complied with previous GAAP e.g. FRS 5 and UITF 40
(see for example Staff Education Note 7.)
One area which may give rise to change is the explicit requirement in FRS 102 23.5 that where payment is deferred
under a financing transaction the fair value of the consideration is measured at the fair value of all future receipts
determined using an imputed rate of interest, although even here FRS 5.38 requires that where the time effect of
money is material the amount of the revenue recognised in the period should be the present value of the cash inflows
expected to be received. In other words such revenues should have been discounted under FRS 5.
Deferred taxation
Deferred taxation is provided on the liability method to take account of timing differences between the treatment of
certain items for accounts purposes and their treatment for tax purposes.
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Notes to the financial statements for the year ended 31 December 2014
Tax deferred or accelerated is accounted for in respect of all material timing differences except on the revaluation of
freehold property and investment property unless, by the balance sheet date, the reporting entity has:
(a) entered into a binding agreement to sell the revalued assets; and
(b) recognised the gains and losses expected to arise on sale.
FRS 102 removes the current exemptions in FRS 19
Deferred tax assets and liabilities are discounted to reflect the time value of money.
FRS 102 prohibits discounting of deferred tax.
Foreign exchange
Transactions denominated in foreign currencies are translated into sterling and recorded at the rate of exchange
ruling at the date of the transaction.
Balances at the year-end denominated in a foreign currency are translated into sterling at the rate of exchange ruling
at the balance sheet date.
FRS 102 allows the use of a presentation currency as well as a functional currency. The functional currency, which is
“The currency of the primary economic environment in which the entity operates”.
It is expected that few entities will choose a different currency than the functional currency, but if an entity does so,
then the accounting policy will need to be adapted.
One area where the current accounting policy may need to change under FRS 102 is that SSAP 20 allowed an entity to
translate purchases in foreign currencies at the rate of exchange specified in a matching forward contract. This is not
permitted by FRS 102 which requires purchases to be translated using the spot exchange rate on the date of the
transaction. There is an example in Staff Education Note 13 illustrating this and the related treatment of the
derivative financial instrument.
Pension costs
The company operates a defined contribution scheme for the benefit of its employees. Contributions payable are
recognised in profit and loss account when due.
FRS 102 potentially changes the treatment of defined benefit schemes which are multi-employer or group schemes,
and where such changes apply, this should be reflected in the accounting policies.
Financial instruments
It is quite possible that an entity does not already have an accounting policy for financial instruments. Even if it does it
is probable that it will need to be amended to reflect the changes required by FRS 102 Sections 11 and 12.
Staff Education Notes 2 and 13 give illustrations of the practical implications on transition.
4
TURNOVER
The company’s turnover represents the value, excluding value added tax, of goods and services supplied to customers
during the year/period.
The analysis of turnover by activity and geographical area is as follows:
The segmental reporting requirements of SSAP 25 have been dropped. Where an entity is required to give segmental
reporting information, for example under the AIM rules, FRS 102 cross refers to IFRS 8 which should be followed.
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Notes to the financial statements for the year ended 31 December 2014
5
OPERATING PROFIT (LOSS) BEFORE TAX
Since FRS 102 does not require the disclosure of operating profit, the disclosures
in this section which are primarily required by the Companies Act will probably
be cross2014
referred to profit before tax. 2013
£
£
Operating Profit before tax is stated after charging:
Directors' remuneration
Pensions of directors and past directors (see note 29)
Compensation to directors or past directors in respect of
loss of office
Auditors' remuneration
Depreciation and amortisation of owned assets
Depreciation of assets held under finance leases and hire
purchase. Contracts
Loss on sale of tangible fixed assets
Research and development
Operating leases - plant and machinery
Operating leases - other assets
Net gains / losses on foreign currency translations
Exceptional items:- [List]
Other line items considered relevant
and after crediting:
Profit on sale of tangible fixed assets
6
AUDITORS’ REMUNERATION
The disclosures are required under CA 2006 and are not repeated here as they are not impacted by FRS 102.
7
DIRECTORS' REMUNERATION
The disclosures are required under CA 2006 and are not repeated here as they are not impacted by FRS 102.
FRS 102 requires disclosure of aggregate key management remuneration, in addition to any disclosure of
directors’ or similar remuneration required by CA 2006. Where the only members of key management are the
directors a statement to that effect will suffice. Where there are no directors’ emoluments or similar
disclosures, this information will probably be given in the related parties note.
8
STAFF COSTS
The disclosures are required under CA 2006 and are not repeated here as they are not impacted by FRS 102.
9
INTEREST PAYABLE AND SIMILAR CHARGES
2014
£
Interest payable
2013
£
- bank loans and overdrafts
- all other loans
Finance charges payable - finance leases and hire purchase
contracts Lease payments recognised as an expense
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Notes to the financial statements for the year ended 31 December 2014
10
TAX ON PROFIT (LOSS) ON ORDINARY ACTIVITIES
(a)
Analysis of charge in period
Potentially the biggest presentational change in the area of taxation
relates to the requirement in FRS 102 29.26 and 27 to disclose the
major components of tax expense (i.e. in profit or loss and other
comprehensive income), with separate disclosure of the aggregate
current and deferred tax relating to items that are recognised in other
Current tax:
comprehensive income or equity.
2014
£
2013
£
UK Corporation tax on profits of the period
Adjustments in respect of previous periods
Foreign tax
Total current tax (note (10)(b))
Deferred tax:
Origination and reversal of timing differences
Effect of increased tax rate on opening liability
Increase in discount
Discounting is not
permitted by FRS 102.
FRS 102 29.10
Total deferred tax (note 18)
Tax expense (income) arising from a change in accounting
policies (see FRS 102 29.26 (f))
Tax on profit on ordinary activities
FRS 3 includes a specific requirement for
disclosure of the tax effects of exceptional items,
Since FRS 102 does not have a requirement to
disclose exceptional items it cannot require
disclosure of tax effects. It may however be
considered relevant to disclose the tax effects of
any additional line items included because of
their significance.
The effect of the exceptional item at note 3 is as follows:
(b)
Factors affecting tax charge for period
The detailed disclosure requirements of paragraph 64 of FRS 19 relating to the circumstances affecting
current and future years are not included in FRS 102. FRS 102 requires disclosure of:
(a) The aggregate current and deferred tax relating to items that are recognised as items of other
comprehensive income;
(b) The reconciliation between:
i.
The tax expense (income) included in profit or loss; and
ii.
The profit or loss on ordinary activities before tax multiplied by the applicable tax rate;
(c) The amount of the net reversal of deferred tax assets and deferred tax liabilities expected to occur
during the period beginning after the reporting period together with a brief explanation for the expected
reversal;
(d) An explanation of the changes in the applicable tax rates compared with the previous reporting period
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Transition Limited
Notes to the financial statements for the year ended 31 December 2014
(e) The amount of deferred tax liabilities and deferred tax assets at the end of the reporting period for each
type of timing difference and the amount of unused tax credits; and
(f) The expiry date, if any, of timing differences, unused tax losses and unused tax credits.
The tax assessed for the period is lower than the standard rate of corporation tax in the UK (%). The
differences are explained below:
2014
£
2013
£
Profit on ordinary activities before tax
Profit on ordinary activities multiplied by standard rate
of corporation tax in the UK of % (20 : %)
Effects of:
Expenses not deductible for tax purposes
(primarily goodwill amortisation)
Capital allowances for period in excess of depreciation
Utilisation of tax losses
Rollover relief on profit on disposal of property
Higher tax rates on overseas earnings
Adjustments to tax charge in respect of previous periods
Current Ttax charge for period (note 10 (a))
The reconciliation of the tax charge under FRS 19 is the current tax charge, under
FRS 102 it is the total tax charge included in profit and loss i.e. it excludes tax in
other comprehensive income and equity.
(c)
Factors that may affect future tax charges
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Transition Limited
Notes to the financial statements for the year ended 31 December 2014
11
INTANGIBLE FIXED ASSETS
Patents
£
Goodwill
£
Total
£
£
Cost:
At 1 January 2014
Additions
Disposals
At 31 December 2014
Amortisation:
At 1 January 2014
Charge for the year
Impairment
Eliminated on disposals
At 31 December 2014
Net book value:
At 31 December 2014
At 31 December 2013
FRS 102 requires disclosure of the description, carrying amount and remaining amortisation period of any individual
intangible asset that is material to the entity’s financial statements.
Under Section 27, an impairment review is only required when there is an indicator of impairment. Under FRS 10 and
11 an impairment review was required where the life of an intangible asset was > 20 years, and in the first year after a
business combination. The treatment under section 27 is the same as under FRS 11 i.e. compare the carrying amount
with the recoverable amount, which is defined as the higher of value in use and fair value less costs to sell.
There are additional disclosure requirements where intangible assets are accounted for under the revaluation
method. These disclosures are:
(a)
(b)
(c)
(d)
Date;
Whether an independent valuer was involved;
The methods and significant assumptions; and
For each revalued class of intangible assets, the carrying amount that would have been recognised had the
asset been included under the cost model.
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Transition Limited
Notes to the financial statements for the year ended 31 December 2014
12
TANGIBLE FIXED ASSETS PROPERTY PLANT AND EQUIPMENT
Land and
buildings
£
Plant and
machinery
£
Fixtures
and
fittings
£
Motor
vehicles
£
Total
£
Cost (* or valuation):
At 1 January 2014
Additions
Disposals
At 31 December 2014
Depreciation:
At 1 January 2014
Charge for the year
Impairment
Eliminated on disposals
At 31 December 2014
Net book value:
At 31 December 2014
At 31 December 2013
£
The net book value of land
and buildings at 31 December
2014 comprised:
Freehold
Long leasehold
Short leasehold
The cost of depreciable assets included in land and buildings at 31 December 2014 was £
Included in the total net book value of tangible fixed assets held at 31 December 2014 was £
assets held under finance leases and hire purchase contracts.
in respect of
FRS 102 gives an accounting policy choice of the cost or revaluation model.
What is capitalised, and depreciation policies and useful lives are unlikely to be significantly different from those
under FRS 15.
Where the revaluation model is used, the only requirement is to keep the valuations sufficiently up to date such that
the carrying value is not materially different from fair value. There is no requirement for independent or qualified
valuers. Section 17 is perceived to be less onerous than FRS 15 which required a full valuation every 5 years and an
interim valuation at the end of year.
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Transition Limited
Notes to the financial statements for the year ended 31 December 2014
Residual value is assessed at the end of each reporting period. Under FRS 15 this was initially assessed and not
revised.
Under Section 27, an impairment review is only required when there is an indicator of impairment. Under FRS 11 an
impairment review was required where no depreciation was charged on the grounds that it would be immaterial or
where the life of a tangible asset was > 50 years. The treatment under section 27 is the same as under FRS 11 i.e.
compare the carrying amount with the recoverable amount, which is defined as the higher of value in use and fair
value less costs to sell.
The disclosures under FRS 102 are similar to those under FRS 15 including the disclosure of the carrying value under
the cost basis where the revaluation model is used.
FRS 102 also includes disclosure requirements for the following, which are already required for companies under CA
2006:
(a) The existence and carrying amounts of property, plant and equipment to which the entity has restricted title
or that is pledged as security for liabilities; and
(b) The amount of contractual commitments for the acquisition of property, plant and equipment.
13
INVESTMENT PROPERTY
Total
£
Market Fair value at 1 January 2014
Additions
Disposals
Net gains or losses from fair value adjustments
Transfers to and from property, plant and equipment
Transfers when fair value can
no longer be measured at fair
value without undue cost or
effort. Where relevant,
separate lines would be
required for transfers in and
out.
Market Fair value at 31 December 2014
Investment property is not one of the format headings and could be included within tangible fixed assets or under
investments or, as here, as a separate heading.
The key changes in the treatment of investment properties are covered in the accounting policy note above.
There is no requirement for a qualified or independent valuer.
14
INVESTMENTS HELD AS FIXED ASSETS FINANCIAL ASSETS
Where this caption includes investments in
subsidiaries, associates or joint venture it may be
appropriate to retain the heading investments held
as fixed assets.
Listed
£
Unlisted
£
Total
£
£
Cost or valuation at 1 January 2014
Additions
Disposals
FRS 102 will change the default position for many of these
investments such that they should be included at fair value
i.e. listed investments and others which can be measured
reliably. Under current UK GAAP, many of these will be
carried at cost less impairment.
Cost or valuation at 31 December 2014
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Transition Limited
Notes to the financial statements for the year ended 31 December 2014
At the end of the year/period the market value of listed investments was £
15
(2013 - £
)
STOCKS (AND WORK IN PROGRESS) INVENTORIES
2014
£
2013
£
Raw materials (and consumables)
Work in progress
Finished goods (and goods for resale)
Payments on account
FRS 102 requires disclosure of the amount of inventories recognised as an expense in the period (FRS 13.22).
Inventories are subject to impairment review under Section 27 on an annual basis. This is likely to give the same
results as the current recognition of provisions for slow moving and obsolete stock. However, FRS 102 13.22 requires
disclosure of impairment losses recognised or reversed during the year, which was not required by SSAP 9.
FRS 102 permits the capitalisation of borrowing costs in inventories. Under previous GAAP it was permitted only in
relation to tangible fixed assets under FRS 15. If such a policy is adopted the following disclosures are required:
(a) Details of the accounting policy;
(b) The fact that the transitional exemption under 35.10 (o) has been used, where relevant. This permits the
capitalisation to commence from the date of transition;
(c) The amount of borrowing costs capitalised in the period; and
(d) The capitalisation rate used.
16
DEBTORS
2014
£
2013
£
Trade debtors
Amounts owed by group undertakings
Amounts owed by undertakings in which the company
has a participating interest
Other debtors
Prepayments and accrued income
Staff Education Note 3 gives some guidance on impairment of trade debtors. FRS 102 requires debtors to be included
at amortised cost. In practice this is likely to produce the same results as the current provision for bad and doubtful
debts. However FRS 102 is more prescriptive in requiring objective evidence of impairment.
Particular care is required when recording sales and trade debtors where sales includes a financing element.
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Transition Limited
Notes to the financial statements for the year ended 31 December 2014
17
INVESTMENTS HELD AS CURRENT ASSETS FINANCIAL ASSETS
2014
£
At cost or fair value
Listed
Unlisted
FRS 102 will change the default position for many of these
investments such that they should be included at fair value
i.e. listed investments and others which can be measured
reliably. Under current UK GAAP, many of these will be
carried at cost less impairment.
The market value of the listed investments was £
18
2013
£
.
CREDITORS - AMOUNTS FALLING DUE WITHIN ONE YEAR
2014
£
2013
£
Debenture loans
Bank loans and overdrafts
Payments received on account
Trade creditors
Bills of exchange payable
Amounts owed to group undertakings
Amounts owed to undertakings in which the company has
a participating interest
Other creditors
Financial liabilities
Corporation tax
Other tax and social security
Obligations under finance leases and hire purchase
contracts
Accruals and deferred income
The bank overdraft/loan/debenture is secured by …………………………………………………………..
The big change in the creditors will be financial liabilities recognised under Section 11 and 12 which are not currently
recognised.
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Transition Limited
Notes to the financial statements for the year ended 31 December 2014
These illustrative financial statements do not include the detailed disclosure requirements relating to financial
instruments.
19
CREDITORS - AMOUNTS FALLING DUE AFTER MORE THAN ONE YEAR
2014
£
2013
£
Debenture loans
Bank loans and overdrafts
Payments received on account
Trade creditors
Bills of exchange payable
Amounts owed to group undertakings
Amounts owed to undertakings in which the company has
a participating interest
Other creditors
Corporation tax
Financial liabilities
Other tax and social security
Obligations under finance leases and hire purchase
contracts
Accruals and deferred income
20
BORROWINGS
2014
£
2013
£
Analysis of creditors falling due after more than five years:
Aggregate of non-instalment debts that fall due for
repayment after five years:
Bank loans
Debentures, loan stock and other loans
Finance leases and hire purchase contracts
Aggregate of instalments which fall due for payment after
five years:
Bank loans
Debentures, loan stock and other loans
Finance leases and hire purchase contracts
The payment terms and interest rate of each creditor
for which an amount fall due after five years are as
follows:
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Transition Limited
Notes to the financial statements for the year ended 31 December 2014
21
PROVISIONS FOR LIABILITIES
Deferred
taxation
£
Balance at 1 January 2014
Utilised during the year/period
Charge for the year/period
Change in discount rate
Other
provisions
£
Total
£
FRS 102 prohibits discounting of deferred tax, previously permitted
under FRS 19 but requires it for other provisions under Section 22:
Provisions and contingencies
Balance at 31 December 2014
2014
£
2013
£
Deferred tax:
Accelerated capital allowances
Tax losses carried forward
Undiscounted provision for deferred tax
Discount
Discounted provision for deferred tax
The introduction of the Statement of changes in equity is likely to mean that many of these notes become redundant or are given as
supplementary to, perhaps on the face of that statement, especially when there are no changes in share capital during the period.
22
SHARE CAPITAL
Allotted called up and fully paid
(Number)
(Number)
Ordinary shares of
Cumulative / Non-cumulative /
Redeemable / Coupon Preference
Shares* of
each
On
20
an aggregate consideration of £
The
20
20
2014
£
2013
£
each
shares which had an aggregate nominal value of £
.
were allotted for
redeemable preference shares are redeemable on
at the option of the company between
20
and
. No premium is payable on redemption./A premium of £
per share is payable on redemption.
Redeemable shares should be, and other preference shares may need to be, classified as creditors. Where this is
the case, this disclosure could be included in the creditors’ notes above. It is unlikely that the treatment of such
shares will change under FRS 102.
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Transition Limited
Notes to the financial statements for the year ended 31 December 2014
FRS 102 includes the following disclosure requirements some of which exceed the disclosure requirements of
CA 2006, and impose requirements on other financial statements which may not be required currently:
 For each class of share capital:
o Number of shares issues and fully paid, and issued but not fully paid;
o Par value per share or that the shares have no par value;
o A reconciliation of the number of shares outstanding at the beginning and end of the
period. This reconciliation need not be presented for prior periods;
o The rights, preferences and restrictions attaching to that class including restrictions on the
distribution of dividends and the repayment of capital;
o Shares in the entity held by the entity or by its subsidiaries, associates or joint ventures;
o Shares reserved for issue under options and contracts for the sale of shares, including the
terms and conditions
 A description of each reserve within equity
 An entity without share capital shall disclose equivalent information as that for shares showing
changes during the period, and the rights, preferences and restrictions attaching to each class of
equity.
23
SHARE PREMIUM ACCOUNT
2014
£
At
2013
£
20
2
20
2
On issue of shares during the year
Expenses of issue
At
24
REVALUATION RESERVE
2014
£
At
2013
£
20
2
20
2
Arising on revaluation during the year
Amortisation during the year
At
25
PROFIT AND LOSS RESERVE
2014
£
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2013
£
22
Transition Limited
Notes to the financial statements for the year ended 31 December 2014
20
At
Profit for the financial year / period
Dividends
At
20
The reconciliation of shareholders’ funds has been replaced by the Statement of changes in equity which must
appear as a primary statement and not in the notes.
26
RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS
2014
£
2013
£
Profit (loss) for the financial year
Dividends
Other recognised gains and losses relating to the year (net)
New share capital subscribed
Goodwill written-off
Net addition to shareholders' funds
Opening shareholders' funds
Closing shareholders' funds
27
ADVANCES TO DIRECTORS
During the period a director, Mr H Potter received an interest free loan of £25,000 to enable him to carry out
his duties. The amount outstanding at the year-end was £25,000.
28
RELATED PARTY TRANSACTIONS
During the year the company made sales of £25,000 to Potter Ltd, a company controlled by H Potter a
shareholder.
29
CONTROLLING PARTY
FRS 102 removes the requirement to disclose the name of the related party. Care
should be taken where the related party is a director as disclosure of the name may be
required by Companies Act 2006.
The directors consider that Mr H Potter is the controlling party.
30
POST BALANCE SHEET EVENT(S)
The definition and treatment of adjusting and non-adjusting post balance sheet events under FRS 102 is identical to
that under FRS 21.
31
CAPITAL COMMITMENTS
FRS 102 includes a requirement for disclosure of the amount of contractual commitments for
20
the acquisition of property, plant and equipment. Previously this was only a requirements
under the Companies Act.
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23
Transition Limited
Notes to the financial statements for the year ended 31 December 2014
£
£
Contracts for capital expenditure not provided for
32
LEASING COMMITMENTS
Note the change to disclosure of total commitments (see FRS 102). This figure will therefore
change more frequently (annually?) than under SSAP 21!
The company had annual total commitments under non-cancellable operating leases as detailed below:
20
Land and
Buildings
£
20
Land and
Buildings
£
Other
£
Other
£
Operating leases which expire:
Within one year
Within two to five years
After more than five years
33
FRS 102 does not include the distinction between leases of land
and buildings and other required by SSAP 21. A total will suffice
for each time period
CONTINGENT LIABILITIES / ASSETS
The definitions and disclosures relating to contingent assets and liabilities under Section 22 of FRS 102 mirror those of FRS 12
and are unlikely ti change on transition.
34
PENSION COSTS
The company operates a defined contribution pension scheme. The assets of the scheme are held separately
from those of the company in an independently administered fund. The pension cost charge represents
contributions payable by the company to the fund and amounted to £
(20 - £
).
Contributions totalling £
(20 - £ ) were payable to the fund at the year-end and are included in
creditors.
35
GROSS CASH FLOWS
£
£
Returns on investments and servicing of finance
Interest received
Interest paid
Capital expenditure
Payments to acquire intangible fixed assets
Payments to acquire tangible fixed assets
Receipts from sales of tangible fixed assets
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Transition Limited
Notes to the financial statements for the year ended 31 December 2014
Management of liquid resources
Purchase of treasury bills
Sales of treasury bills
Financing
Issue of ordinary share capital
Repurchase of debenture loan
Expenses paid in connection with share issues
36
ANALYSIS OF CHANGES IN NET DEBT
At 1 January
2014
£
Cash flows
£
Other
changes
£
At 31
December
2014
£
Cash in hand, at bank
Overdrafts
Debt due within 1 year
Debt due after 1 year
Current asset investments
TOTAL
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Transition Limited
Notes to the financial statements for the year ended 31 December 2014
EXPLANATION OF TRANSITION
As part of the explanation required by FRS 102, sections 35.12, 35.13 requires the following:
(a) A description of the nature of each change in accounting policy;
(b) Reconciliations of its equity determined in accordance with its previous financial reporting framework to its
equity determined in accordance with FRS 102 for both the date of transition and the most recent statement of
financial position;
(c) A reconciliation of the profit or loss determined in accordance with its previous financial reporting framework for
the latest period in the entity’s most recent financial statements to its profit or loss
FRS 102 does not give any guidance on the form of the reconciliations required in relation to the reconciliations of
equity or profit or loss, or of the explanation of the effects of transition. The following illustrations are based on those
included in Staff Education Note 13: Transition to FRS 102.
Staff Education Note 13 gives 2 options for the reconciliations and both are illustrated here.
The illustrations in Staff Education Note 13 include monetary amounts which are gross i.e. before taxation. No change
in shown in the taxation figure in the illustration. In practice these changes may well be taxable or tax allowable. It
may therefore be appropriate to note the tax effects of the changes in the explanation of transition.
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Transition Limited
Notes to the financial statements for the year ended 31 December 2014
37
RECONCILIATION OF EQUITY
Option 1
At 1 January 2014
Note
As
previously
stated
Effect of
transition
At 31 December 2014
FRS 102
(as
restated)
As
previously
stated
Effect of
transition
FRS 102
(as
restated)
Fixed assets
Current assets
Creditors: amounts falling due
within one year
Net current assets
Total assets less current
liabilities
Creditors: amounts falling due
after more than one year
Provisions for liabilities
Net assets
Capital and reserves
Option 2
Note
1 January
2014
31 December
2014
Capital and reserves (as previously stated)
Recognition of derivative financial instruments
Short term compensated absences
Capital and reserves as restated
38
RECONCILIATION OF PROFIT AND LOSS
Option 1
Notes
Year ended 31 December 2014
As
Effect of
FRS 102 (as
previously
transition
restated)
stated
Turnover
Cost of sales
Gross profit
Administrative expenses
Other operating income
Operating profit
Interest receivable and similar income
Interest payable and similar charges
Profit before taxation
Taxation
Profit on ordinary activities after taxation and
for the financial year
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Transition Limited
Notes to the financial statements for the year ended 31 December 2014
Option 2
Note
Year ended
31 December
2014
Profit for the year (as previously stated)
Recognition of derivative financial instruments
Re-measurement of stock using spot exchange rate
Short term compensated absences
Profit for the year as restated
39
(a)
NOTES TO RECONCILIATIONS
Financial instruments
Transition Ltd was not previously required to recognise derivative financial instruments on the balance sheet.
Instead the effects of the derivative financial instruments were recognised in profit or loss on settlement.
Under FRS 102, derivative financial instruments are classified as other financial instruments and are
recognised as a financial asset or a financial liability, at fair value, when an entity becomes party to the
contractual provisions of the instrument.
On the adoption of the requirements of FRS 102, financial assets of £Y and financial liabilities of £Y have been
recognised on the balance sheet at the date of transition, 1 January 2014.
At 31 December 2014, the fair values of the financial assets and financial liabilities were £Y and £Y
respectively.
In accordance with the accounting policy in 1 above the difference between the fair values of £Y-£X has been
recognised in profit and loss for the year.
(b)
Short-term compensated absences
Prior to the adoption of FRS 102, Transition Ltd did not make provision for holiday pay earned but not taken
before the year end. FRS 102 requires the cost of short-term compensated absences to be recognised when
employees render the service that increases their entitlement.
Consequently an additional accrual of £A at 1 January 2014 has been made to reflect this. The provision at 31
December 2014 had increased to £B and the increase in provision of £B- £A has been charged to profit and
loss in the year ended 31 December 2014.
(c)
Lease incentives
Prior to the adoption of FRS 102, Transition Ltd had recognised the benefit of lease incentives over the
shorter of the life of the lease of the period to the date of the next rent review at which rent is expected to
be reset to a market rate.
FRS 102 requires such incentives to be recognised over the life of the lease but includes an exemption which
allows an entity to continue with that policy for leases entered into before the date of transition. Transition
Ltd has taken advantage of the exemption and accordingly there is no adjustment to the balance sheet at 1
January 2014.
Lease incentives obtained in 2014 have been restated in accordance with FRS 102 resulting in an increase in
lease expenses charged and a reduction in deferred income of £M.
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UK Training (Worldwide) Limited
Registration Number 02695623 England and Wales
Registered Office 17 Duke Street,
Formby L37 4AN
Telephone: 01704 878988
Facsimile: 01704 832124
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