FRS102: How affects TechCo’s ?
Accounting standard FRS102 is the biggest change in accounting rules for nearly a generation. It will influence how statutory accounts are presented, the terminology and how profit (and hence tax) is calculated. All SME companies must follow this standard for accounting periods commencing on or after 1 January 2016, with earlier adoption encouraged. So how will this affect technology company accounts:
|Existing Rules||New Rules|
|Deferred Development Expenditure||General criteria for what project costs can be capitalised.||Much tighter criteria for what project costs can be capitalised (splitting research and development phases).|
|Government Capital Grants||Amortised over the life of the related assets.||Option to recognise fully when eligibility criteria fulfilled.|
|Freehold Property||Option of valuing at depreciated cost or
open market value.
|More situations require annual adjustment to open market valuation.|
|Intangible Assets (including goodwill)||Amortised over predicted (but rebuttable) maximum useful economic life of 20 years.||Amortised over predicted maximum useful economic life of 5 years.|
|Holiday Pay||No explicit requirement to adjust.||Must make a year end accrual or prepayment for any material difference.|
|Deferred Tax||Not required on re-valued property.||Must now be provided for upon the gain or loss on re-valued property.|
|Interest Free Loans||Stated at past money value.||Discounted back to be stated at net present value of future repayments.|
As always, the choice of accounting policy, where there is now a choice, will depend upon whether your business is driven by profitability, tax or solvency.