According to https://www.gov.uk/government/publications/accounting-standards-the-uk-t... "In FRS 105, financial instruments are typically recognised at transaction price and measured on an amortised cost basis".
Whereas, according to https://library.croneri.co.uk/cch_uk/adi/669-10 " Under FRS 105, there is a simpler way of accounting for these types of loans because the amortised cost method, which uses an effective interest rate, does not apply to FRS 105 reports. In other words, the interest charge is simply the interest paid to the bank."
Nowithstanding the conflicting advice above, and Croneri's contention that the amortised cost method does not apply to FRS 105, I've been opting for the amortised cost basis (together with disclosure note) for FRS 105 BBLs. Not dissimilar to FRS 102. But how are other practitioners accounting for BBLs under FRS 105 please?
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I thought the point of FRS 105 was that you didn't have to waste your time with ridiculous drivel like this.
Am I going OTT by adopting the latter?
In my opinion, yes. Surely the amounts would be immaterial?
Interest at 2.5% of a maximum of 25% of turnover is quite small to start with
Shifting the interest between years?
The difference between version a and version b immaterial in my opinion and just a matter of timing
Most simple version
Hence ignored for the first year
Definitely no interest against grant confusion
If client thinks the accounting theory is daft then is the client wrong?
I am saying what I have done
Not what accounting theory would suggest
When I mentioned the grant against interest to a few clients they genuinely thought I was joking.
BBLs were being doled out April 20 onwards so this issue has been around for nearly 18 months with very little on Aweb Any answer
https://www.google.com/search?q=bounce+back+loan+limited+company+directo...
Quite a bit on here suggesting directors that claimed and frittered might be held accountable
I've also followed the guidance and entered debit to interest expense and credit to government grant income followed by amortised cost. Most of these BBLs have the same profile so I've just set up template to run the numbers each time. Takes seconds so might as well.
The issue here is the use of the term "effective interest rate". This appears in FRS 102 but not 105, however both make reference to use of "amortised cost".
So the accounting for loans is principally the same ie an interest rate is applied to the capital balance and charged to P&L - this is the amortised cost bit.
The difference between the two standards, and this is referred to in the Croner-i BBL example, is the "effective interest rate". As the example says this may be for some companies 5%, when a BBL was capped at 2.5%, and so under FRS 102 there is an argument (not a strong one in my opinion) that you would charge 5% on the discounted BBL loan. As CBILS rates were not fixed and lenders had scope to set a rate in relation to risk this meets the effective interest rate definition and no further thought is required. For FRS 105 all of this is irrelevant as the interest rate charged is the interest rate applied in the accounts.
You should still, under FRS 105, account for the government grant element of the interest in the first year.
Always helps to read the actual standard....
The 'Basis for Conclusions' at the end of FRS105 states that the effective interest method is considered too onerous for micro entities (para 19(h)).
I note the suggestion to book an actual interest amount with an offsetting grant income. Notwithstanding the ACCA guidance, I would argue that the grant is made to the lender to allow them to lend at a discounted rate and is not a grant to the borrower. The borrowers did not apply to government to receive the discounted rate and payment goes directly to lender.
I note the suggestion to book an actual interest amount with an offsetting grant income. Notwithstanding the ACCA guidance, I would argue that the grant is made to the lender to allow them to lend at a discounted rate and is not a grant to the borrower. The borrowers did not apply to government to receive the discounted rate and payment goes directly to lender.
I disagree with this. Effectively it was the government who funded the various loan schemes, in particular BBL, and the government guarantee and interest rate cap at 2.5% was to avoid the issues seen with CBILS in the early days. Lenders could have chosen to offer a lower rate, but why would you, when you are getting free interest with minimal risk - essentially their fee for dealing with the loan admin as facilitators of the scheme.
The 12 months interest free period offered falls well within the definition of government grant within FRS 102 being the incentive for taking a BBL and not looking for alternative finance at a time of need. If you argue that the payment going directly to the lender negates the accounting treatment that causes problems when accounting for capital grants that go direct to suppliers or funders which is incredibly common.
I'm not sure you can argue on treatment when the various professional bodies have all agreed the treatment and recommended to their members...