Is this a problem?

It could be, without the right advice and guidance.

Why the change?

Your first set of accounts in your reporting period beginning on or after 1 January 2016 will be prepared under FRS102, a new accounting standard. The standard aims to improve reporting and consistency with international accounting standards.

How the change affects you

  • Amended presentation of the company accounts, including some extended disclosure requirements.
  • Transition rules require representation of balance sheets for the previous two years.
  • Alterations to tax computations and returns to reflect the new standard.
  • Time will be absorbed in preparing for the changes.

How Minford can help you

Managing the change of the new accounting framework in-house will have an impact on your training requirements and ultimately, your time.

At Minford we have the technical expertise to assist you through this change by:

  • Advising you of the accounting changes relevant to you
  • Assisting you with accounting policies
  • Consideration of practical implications of differences on areas such as bank covenants, taxation or distributable reserves
  • Formatting of financial statements, including comparative information
  • Working with you to manage the whole transition process

For further information, please contact our experts on 01904 414471.

Key changes arising from the introduction of FRS102


Some aspects of the accounts are renamed:
The profit & loss account will become the “Income Statement” and the balance sheet will be the “Statement of Financial Position”. There is also a new statement, the “Statement of Changes in Equity”, which presents information previously disclosed in the notes to the accounts.

The standard also introduces and relies heavily on “fair value”, which can generally be interpreted as a market value.

Fixed assets (property, plant & equipment)

  • Land and buildings are strictly separate assets and must be accounted for separately. This means that when buying a property, it is mandatory for the amount paid to be separated between the cost of the land and the cost of the buildings.
  • There is a mandatory requirement to look for indicators of impairment to fixed assets at each year end. For example, changes in market conditions or exceptional deterioration in the state of the asset.
  • Assets must also be reviewed on a “cash generating unit” basis where relevant, e.g. all machines producing a specific product would create a unit. The future profits of this unit must be considered in deciding whether that asset unit is excessively valued.
  • Fixed assets can be carried at valuation/fair value, but the fair value must be reviewed each year.

Intangible assets

  • Any software previously shown as a fixed asset must be reclassified as an intangible asset.
  • Intangible assets (e.g. goodwill) must now be written off over five years, unless there is a solid demonstrable basis for another useful life.

Stock (inventories)

  • All stock lines must be reviewed for impairment at the balance sheet date.

Investment properties

  • An investment property is one kept for capital appreciation or for renting out, rather than for use in the business.
  • Properties with mixed use must be ‘split’ e.g. a 2 floor building with 1 floor used for business and 1 floor rented out would be 50% fixed asset and 50% investment property, giving rise to a significantly different accounting treatment.
  • All investment properties must now be valued at fair value, with any year on year changes being recognised in the profit and loss account.
  • Revaluation gains are not distributed, which means that retained profits will need to be analysed to identify cumulative profits and revaluation. This could affect a company’s ability to pay dividends.


  • Assets bought under finance lease, which now includes hire purchase, must be valued at the lower of cost or ‘fair value of the minimum lease payments’.
  • Disclosure of operating leases is now more onerous, being total payments due on a lease rather than amounts to pay in the next year, as at present.


  • “Split” revenue streams must be accounted for separately, e.g. if a product is sold with a warranty, the accounts must reflect the fair value sales price of the product immediately, and the fair value sales price of the warranty spread over the relevent number of years.
  • Similarly, any customer loyalty schemes must separate revenue used for providing loyalty benefits and recognise the income as the benefits are used, e.g. buy 6 coffees get 1 free – then one seventh of each coffee’s revenue is for the “free” coffee.

Government grants

  • Companies now have a choice of how to account for government grants.
  • The cost model recognises the grant over its life (or life of the asset to which it relates); the performance model allows the entity to recognise the total grant income at the point of completion of the grant’s performance conditions.

Employee benefits

  • Employee costs must now be accounted for as the benefit is derived from those employees. For example entities must accrue staff costs where unused holiday entitlement exists at the year end.
  • The cost of providing long term benefits, including long service awards, must be recognised over the period of employment prior to payment of the benefit.

Prior period errors

  • An adjustment must now be made for any material prior period error. At present, only fundamental errors need to be revised. This means a higher likelihood of prior period adjustments.
  • Any adjustment must include full disclosure of its nature and reason – even if there is no effect on profits or reserves.

Financial instruments

  • Derivatives, forward contracts, interest rate swaps etc. can no longer be netted off.
  • A derivative has to be recognised on the balance sheet at its fair value at the start date.

Agricultural produce

  • Agricultural produce must be valued at fair value at the balance sheet date – difficulties may exist in this e.g. what is the value of a 25% grown potato?

Related party transactions

  • The definition of a related party has been revised.
  • There is now a requirement to disclose amounts paid to key management personnel – who qualifies under this is a key judgement point for directors.
  • Long term intercompany loans must be shown using an “effective interest” method – so companies are required to recognise implied interest income and associated charges.

Deferred tax

  • All revaluations must include provision in full for deferred tax.
  • Disclosure requirements have been increased.

When is my implementation date?

The first set of accounts prepared will be for your first reporting period beginning on or after 1 January 2016;

Whilst a reduced reporting option will be available to small companies, prescriptive detail is not yet available and is only likely to reduce the level of disclosure, not the application of the new methods of calculation.

For further information please contact our experts on 01904 414471.