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UK standard relating to foreign income

Hi there im wondering if someone can help.

I have been given an assignment from work to do some background research and will be preparing accounts for a client.

The client is a small UK Ltd compny which is a corporate partner in a US business (partnership). The UK company receives profits from the US business on a varied basis....The UK company also has 15% shares, 25% shares and 53% shares in different US companies and receives/will be receiving dividends from the US companies.

How is this income accounted for in the Ltd company’s accounts in the UK?

In particular under what FRS standard?

Would the income/dividends be classed as turnover or other income?

Are there any links/articles anyone knows of?

Note – the UK company does not receive any other income in the UK or anywhere else, and has virtually no expenses.  Essentially, it was set up just to receive income from US businesses.

Many thanks



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By johnt27
27th Feb 2013 15:56

It's complicated

Assuming your client is small as stated they should be using the FRSSE 2008 to prepare their accounts. Included in the FRSSE is commentary on revenue recognition but this is superceded by FRS 5 Application Note G.

If you aren't using the FRSSE then you need to check out FRS 2, 3, 5, 18 and 25 for guidance on revenue recognition and the treatment of the investments.

Based on the information provided though it sounds as if your client is an investment company that earns income through dividends/profit shares which would normally comprise other income. Turnover tends to suggest that a trade is being undertaken.

You may want to also check that your client qualifies as a small company as it potentially has an associate and a subsidiary based on 25% and 53% profit shares which if these companies are big enough may mean that you breach the small group limits. This would exclude your client from claiming small company exemptions and would mean that consolidated accounts would need to be prepared.

This in turn could have repercussions on the company's audit exemption assuming it is currently claiming exemption.

Thanks (1)
27th Feb 2013 16:54

Thanks John, just as I thought.

Thanks (0)