| 11.13 | When a financial asset or financial liability is recognised initially, an entity shall measure it at the transaction price (adjusted for transaction costs except in the initial measurement of financial assets and liabilities that are subsequently measured at fair value through profit or loss) unless the arrangement constitutes, in effect, a financing transaction. An arrangement constitutes a financing transaction if payment is deferred beyond normal business terms or is financed at a rate of interest that is not a market rate, for example, providing interest-free credit to a buyer for the sale of goods or an interest-free or below market interest rate loan made to an employee. Except as set out in paragraph 11.13A, if the arrangement constitutes a financing transaction, the entity shall measure the financial asset or financial liability at the present value of the future payments discounted at a market rate of interest for a similar debt instrument as determined at initial recognition adjusted for transaction costs. [AMD 303] |
Examples – financial assets |
1 For a long-term loan at a market rate of interest made to another entity, a receivable is recognised at the amount of the cash advanced to that entity plus transaction costs incurred by the entity (see the example following paragraph 11.20). [AMD 81] |
2 For goods sold to a customer on short-term credit, a receivable is recognised at the undiscounted amount of cash receivable from that entity, which is normally the invoice price. |
3 For an item sold to a customer on two-years interest-free credit, a receivable is recognised at the present value of the cash receivable discounted using the prevailing market rate of interest for a similar receivable. In transactions conducted on an arm's length basis the cash sales price for immediate settlement would normally approximate to the present value. [AMD 304] |
4 For a cash purchase of another entity's ordinary shares, the investment is recognised at the amount of cash paid to acquire the shares. |
Examples – financial liabilities |
1 For a loan received from a bank at a market rate of interest, a payable is recognised initially at the amount of the cash received from the bank less separately incurred transaction costs. [AMD 82] |
2 For goods purchased from a supplier on short-term credit, a payable is recognised at the undiscounted amount owed to the supplier, which is normally the invoice price. |
| 11.13A | As an exception to paragraph 11.13, the following financing transactions may be measured initially at transaction price: |
| (a) | a basic financial liability of a small entity that is a loan from a person who is within a director's group of close family members36, when that group contains at least one shareholder37 in the entity; and |
| (b) | a public benefit entity concessionary loan (see paragraph PBE11.1A). |
| 11.13B | An entity taking advantage of the exemption in paragraph 11.13A(a) that subsequently ceases to be a small entity may, when remeasuring the financial liability to present value prospectively from the first reporting date after it ceases to be a small entity, determine the present value on the basis of the facts and circumstances existing at that time or at the date the financing arrangement was entered into. |
| 11.13C | An entity that subsequently becomes eligible to take advantage of the exemption in paragraph 11.13A(a) and chooses to do so shall apply the exemption retrospectively. [AMD 305] |
| AMD 303 Amendment Paragraph 11.13 amended by Amendments to FRS 102: The Financial Reporting Standard applicable in the UK and Republic of Ireland – Triennial review 2017 – Incremental improvements and clarifications (issued December 2017) Effective date 01/01/2019 Previous text 11.13 When a financial asset or financial liability is recognised initially, an entity shall measure it at the transaction price (including transaction costs except in the initial measurement of financial assets and liabilities that are measured at fair value through profit or loss) unless the arrangement constitutes, in effect, a financing transaction. A financing transaction may take place in connection with the sale of goods or services, for example, if payment is deferred beyond normal business terms or is financed at a rate of interest that is not a market rate. If the arrangement constitutes a financing transaction, the entity shall measure the financial asset or financial liability at the present value of the future payments discounted at a market rate of interest for a similar debt instrument. |
| AMD 81 Amendment Paragraph 11.13, Examples - financial assets amended by Amendments to FRS 102 The Financial Reporting Standard applicable in the UK and Republic of Ireland - Small entities and other minor amendments (issued July 2015) Effective date 01/01/2016 (Earlier application permitted subject to certain conditions - see paragraph 1.15) Previous text Example 1 For a long-term loan made to another entity, a receivable is recognised at the present value of cash receivable (including interest payments and repayment of principal) from that entity. |
| AMD 304 Amendment Examples – financial assets, paragraph 3 amended by Amendments to FRS 102: The Financial Reporting Standard applicable in the UK and Republic of Ireland – Triennial review 2017 – Incremental improvements and clarifications (issued December 2017) Effective date 01/01/2019 Previous text 3 For an item sold to a customer on two-years interest-free credit, a receivable is recognised at the current cash sale price for that item (in financing transactions conducted on an arm's length basis the cash sales price would normally approximate to the present value). If the current cash sale price is not known, it may be estimated as the present value of the cash receivable discounted using the prevailing market rate(s) of interest for a similar receivable. |
| AMD 82 Amendment Paragraph 11.13, Examples - financial liabilities amended by Amendments to FRS 102 The Financial Reporting Standard applicable in the UK and Republic of Ireland - Small entities and other minor amendments (issued July 2015) Effective date 01/01/2016 (Earlier application permitted subject to certain conditions - see paragraph 1.15) Previous text Example 1 For a loan received from a bank, a payable is recognised initially at the present value of cash payable to the bank (eg including interest payments and repayment of principal). |
| 36 In this context, a director's group of close family members shall be the director and the close members of the family of that director (see glossary definition of close members of the family of a person). This includes a person who is the sole director-shareholder of an entity. |
| 37 For small LLPs this shall be read as a member who is a person. |
| AMD 305 Amendment Paragraphs 11.13A-11.13C added by Amendments to FRS 102: The Financial Reporting Standard applicable in the UK and Republic of Ireland – Triennial review 2017 – Incremental improvements and clarifications (issued December 2017) Effective date 01/01/2019 |
|
|
Licence and copyright | © 2018, LexisNexis Group a division of Reed Elsevier (UK) Ltd. All rights reserved. |