Illustrative Financial Statements

Transcription

1 Illustrative financial statements Illustrative Financial Statements This document represents information that is used during the presentation of the seminar: Implementing FRS 102 How to convert your financial statements 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. UK Training (Worldwide) Limited 17 Duke Street Formby L37 4AN info@uktrainingworldwide.com Telephone: Facsimile: UK Training (Worldwide) Limited

2 UK Training (Worldwide) Limited Transition Limited Illustrative financial statements

3 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 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 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. UK Training (Worldwide) Limited

4 UK Training (Worldwide) Limited Transition Limited Illustrative financial statements

5 Financial statements for the year ended 31 December 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: UK Training (Worldwide) Limited 1

6 Income Statement Profit and loss account for the year ended 31 December Section 5 FRS 102 does not require acquisitions Continuing operations Acquisitions Discontinued operations Total Total Note TURNOVER 2 Cost of sales (including value adjustments) GROSS PROFIT Distribution costs(including value adjustments) Administrative expenses Bad debt OPERATING PROFIT (LOSS) 5 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 Value adjustments on financial assets and current asset investments Other finance income PROFIT (LOSS) ON ORDINARY ACTIVITIES BEFORE TAXATION Tax on profit on ordinary activities 10 PROFIT (LOSS) FOR THE FINANCIAL YEAR 9 FRS 102 requires fair value adjustments on investment properties and some financial instruments to be recognised in profit and loss account. The amendments included in red are new format headings introduced by the EU Accounting Directive The use of operating profit is not required by FRS 102. If it is used it must be used appropriately 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 FRS 102 requires disclosure of the tax on discontinued operations. FRS 3 does not The notes on pages 8 to 27 form part of these financial statements. UK Training (Worldwide) Limited 2

7 Statement of other comprehensive income Statement of total recognised gains and losses for the year ended 31 December Section 5 FRS 102 allows a single statement approach 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 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 UK Training (Worldwide) Limited 3

8 Statement of financial position Balance sheet as at 31 December Company registration number: FRS 102 Section 4 Note Currently it is considered that the individual asset / liability FIXED ASSETS headings under FRS 102 may not be used and those under Intangible assets See FRS 102 Sections 18 & 19 CA should be. This may change following the Tangible assets Property, plant and equipment See FRS 102 implementation 12 of the Accounting Directive which is expected by 1 January 2016 Section 17 Investment property See FRS 102 Section Investments Financial assets See FRS 102 Sections 11 and CURRENT ASSETS Stocks Inventories FRS 102 Section Debtors FRS 102 Section (including due in more than 1 year, ) Investments Financial assets FRS 102 Sections 11 and Cash at bank and in hand FRS 102 Sections 11 In most cases FRS 102 considers it sufficient to include this information in the notes (4.4A) CREDITORS Amounts falling due within one year FRS 102 Sections 11,12 and NET CURRENT ASSETS (LIABILITIES) TOTAL ASSETS LESS CURRENT LIABILITIES CREDITORS Amounts falling due after more than one year FRS 102 Sections 11, 12 and PROVISIONS FOR LIABILITIES FRS 102 Section NET ASSETS CAPITAL AND RESERVES Called up share capital FRS 102 Section Share premium account FRS 102 Section Revaluation reserve FRS 102 Section Profit and loss account FRS 102 Section SHAREHOLDERS FUNDS 26 These financial statements were approved and authorised for issue by the Board on 17 th July 2015 Signed on behalf of the board of directors Harry Potter HARRY POTTER - Director 17 th July 2015 The notes on pages 8 to 27 form part of these financial statements. UK Training (Worldwide) Limited 4

9 Statement of changes in equity for the year ended 31 December 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. Balance at 1 January as previously reported Prior period adjustment change in accounting policy Prior period adjustment correction of material error As restated Share issue during the year Profit for the year Other comprehensive income for the year Transfers Dividends Balance at 31 December Prior period adjustment change in accounting policy Prior period adjustment correction of material error As restated Share issue during the year Profit for the year Other comprehensive income for the year Transfers Dividends Balance at 31 December Share Capital Under FRS 3 prior period adjustments would have been shown at the foot of the STRGL, as well as in the reconciliation of shareholders funds Share Premium Revaluation Reserve FRS 102 does not give a format for the SOCE. It would be acceptable to show a single figure for net comprehensive income Retained earnings Included in retained earnings is x ( X) of profits which are not available for distribution as they are unrealised Total Under FRS 102, revaluation of investment property and listed investments will appear in profit for the year and hence on retained earnings. An entity is permitted to transfer to revaluation reserve (using Statement of changes in equity) to emphasise that such gains are not realised. Alternatively a note could be included to explain (see foot of table.) 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. FRS 19 had no concept of tax being recognised in equity. Comparative figures are required and the convention under IFRS where there is a columnar presentation such as the SOCE to present the information in tabular form as illustrated here. FRS 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. UK Training (Worldwide) Limited 5

10 Statement of cash flows Cash flow statement for the year ended 31 December Section 7 Reconciliation of operating profit to net cash inflow from operating activities Note Operating profit Depreciation charges Increase in stocks Increase in debtors Increase in creditors 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. 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 Returns on investments and servicing of finance 30 Taxation Capital expenditure 30 Equity dividends paid Net cash inflow before use of liquid resources and financing Management of liquid resources 30 Financing 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 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 UK Training (Worldwide) Limited 6

11 Statement of cash flows Cash flow statement for the year ended 31 December 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 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 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. 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 ) 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 UK Training (Worldwide) Limited 7

12 1 STATUTORY INFORMATION Transition Limited Transition Limited is a company domiciled in England and Wales, registration number The registered office is Hogwarts Castle, Somewhere, County, HW1 1GF. FRS 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 (other than small companies) are required to include such disclosure in the directors strategic 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 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. 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 (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. UK Training (Worldwide) Limited 8

13 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 (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 A 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 No depreciation Freehold buildings - 2% per annum of cost Leasehold property - equal instalments over the period of the lease Plant and machinery - % per annum of cost/net book value Fixtures and fittings - % per annum of cost/net book value Motor vehicles % 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 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. UK Training (Worldwide) Limited 9

14 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 (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 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. UK Training (Worldwide) Limited 10

15 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. UK Training (Worldwide) Limited 11

16 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 cross referred to profit before tax. 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 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 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 INTEREST PAYABLE AND SIMILAR CHARGES Interest payable - bank loans and overdrafts - all other loans Finance charges payable - finance leases and hire purchase contracts Lease payments recognised as an expense UK Training (Worldwide) Limited 12

17 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 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. 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 Total deferred tax (note 18) Discounting is not permitted by FRS 102. FRS Tax expense (income) arising from a change in accounting policies (see FRS (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 UK Training (Worldwide) Limited 13

18 (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: 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 UK Training (Worldwide) Limited 14

19 11 INTANGIBLE FIXED ASSETS Transition Limited Cost: Patents Goodwill Total At 1 January Additions Disposals At 31 December Amortisation: At 1 January Charge for the year Impairment Eliminated on disposals At 31 December Net book value: At 31 December At 31 December 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) Date; (b) Whether an independent valuer was involved; (c) The methods and significant assumptions; and (d) For each revalued class of intangible assets, the carrying amount that would have been recognised had the asset been included under the cost model. UK Training (Worldwide) Limited 15

20 12 TANGIBLE FIXED ASSETS PROPERTY PLANT AND EQUIPMENT Cost (* or valuation): Land and buildings Plant and machinery Fixtures and fittings Motor vehicles Total At 1 January Additions Disposals At 31 December Depreciation: At 1 January Charge for the year Impairment Eliminated on disposals At 31 December Net book value: At 31 December At 31 December The net book value of land and buildings at 31 December comprised: Freehold Long leasehold Short leasehold The cost of depreciable assets included in land and buildings at 31 December was Included in the total net book value of tangible fixed assets held at 31 December 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. UK Training (Worldwide) Limited 16

21 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 Additions Disposals Net gains or losses from fair value adjustments Transfers to and from property, plant and equipment Market Fair value at 31 December 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. 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. Cost or valuation at 1 January Listed Unlisted Total 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 UK Training (Worldwide) Limited 17

22 At the end of the year/period the market value of listed investments was ( - ) 15 STOCKS (AND WORK IN PROGRESS) INVENTORIES 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 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 (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 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. UK Training (Worldwide) Limited 18

23 17 INVESTMENTS HELD AS CURRENT ASSETS FINANCIAL ASSETS 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 CREDITORS - AMOUNTS FALLING DUE WITHIN ONE YEAR 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. UK Training (Worldwide) Limited 19

24 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 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 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: UK Training (Worldwide) Limited 20

25 21 PROVISIONS FOR LIABILITIES Transition Limited Deferred taxation Other provisions Total Balance at 1 January Utilised during the year/period Charge for the year/period Change in discount rate 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 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) Ordinary shares of each (Number) Cumulative / Non-cumulative / Redeemable / Coupon Preference Shares* of each On 20 shares which had an aggregate nominal value of were allotted for an aggregate consideration of. The redeemable preference shares are redeemable on 20 at the option of the company between 20 and 20. 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 UK Training (Worldwide) the case, Limited this disclosure could be included in the creditors notes above. It is unlikely that the treatment of such 21 shares will change under FRS 102.

26 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 At 20 On issue of shares during the year Expenses of issue At REVALUATION RESERVE At 20 Arising on revaluation during the year Amortisation during the year At PROFIT AND LOSS RESERVE UK Training (Worldwide) Limited 22

27 At 20 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 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, RELATED PARTY TRANSACTIONS During the year the company made sales of 25,000 to Potter Ltd, a company controlled by H Potter a shareholder. 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 29 CONTROLLING PARTY required by Companies Act 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 CAPITAL COMMITMENTS FRS 102 includes a requirement for disclosure of the amount of contractual commitments for the acquisition of property, plant and equipment. Previously this was only a requirements under the Companies Act. UK Training (Worldwide) Limited 23

28 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: Land and Buildings Land and Other Buildings Other Operating leases which expire: Within one year Within two to five years After more than five years 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 33 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 Management of liquid resources UK Training (Worldwide) Limited 24

29 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 Cash flows Other changes At 31 December Cash in hand, at bank Overdrafts Debt due within 1 year Debt due after 1 year Current asset investments TOTAL UK Training (Worldwide) Limited 25

30 EXPLANATION OF TRANSITION Transition Limited As part of the explanation required by FRS 102, sections 35.12, 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. 37 RECONCILIATION OF EQUITY Option 1 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 Note As previously stated At 1 January At 31 December Effect of Effect of transition transition FRS 102 (as restated) As previously stated FRS 102 (as restated) Option 2 Capital and reserves (as previously stated) Recognition of derivative financial instruments Short term compensated absences Capital and reserves as restated Note 1 January 31 December UK Training (Worldwide) Limited 26