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This might be cheeky, what do you think?

This might be cheeky, what do you think?

I'm of the awkward generation who studied under IFRS but trades within the UK GAAP regime and I am unsure if I may be confusing the two here. I have checked the FRSSE  (briefly) re the below scenario to no avail.

I have a client purchased a building with some rather nice credit terms; £250k in £500/wk instalments with only £35k down. Repayment is 8.26923077 years.

Of course, to recognise the building and corresponding loan amount and subsequent payments would be straightforward enough. But we're accountants; that's not good enough!

My plan/ploy is the time value of money over that 8 year period.

My question is:

If I effectively "Fair Value" that liability, assuming 3.5% inflation pa for example (which I calculate as £161,768.24 starting point) and subsequently recognise the unwinding of the liability as interest income... Is this then a legitimate deductible finance expense under any head of tax?

If you need reference material see p. 161 Appendix 3 of the FRSSE which details the above scenario as applied to a provision.

Any input whatsoever would be gratefully received.



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28th Apr 2012 11:32


I should maybe say, no Bank etc. involved.

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28th Apr 2012 12:50

I take it you've heard of...

... double-entry?

Let's assume that the building's got a life of 100 years... that makes it's current fair value under the same assumptions about £7,090?  Where should we post the other £154,768?

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28th Apr 2012 13:59


I'm glad you replied. I often read your answers and find them very useful.

Your assumption is correct. I have heard those magical words.

However, my methodology does have some precedent. I'm recalling the IFRS approach from my studies whereby Finance Leases with "0% APR" were adjusted to reflect "Fair Value", e.g. it is not possible to ignore the time-value of the money etc. In such cases an intrinsic interest rate was determined by reference to the relevant market. Ignoring VAT, the entries in such a  case would be (one of a couple of methods I believe)

Dr Asset, £Gross Amount Due

Cr Liability, £Fair Value of Liab. @ NPV

Cr Asset, £Differential between Liab. @ NPV & Asset

Each year the asset would be depreciated & the provision unwound. (from memory - any IFRS students please correct)

Don't confuse the UEL and life of the associated liability which drives the discounting. If you had a loan life of 100 years your above statement would be correct (not checked calcs) and your entries would be similar to above.

There certainly is an argument that this approach is actually more "true and fair" than simply Dr /Cr with gross figs. This building has been sold for consideration deferred (with no stated interest rate) over 8 years and simply put, the time value of money IS a factor.

Here are my double entries for your scrutiny.  Dr/(Cr)


250,000 Freehold Bldgs.

(35,000) Cap Intro

(161,768) NPV "Loan" or Deferred Consideration

(53,232) Freehold Bldgs. (Now Net £196,768 - the deemed Fair Value)


I suppose what I am trying to do is apply Fair Value accounting to a UK GAAP FRSSE entity and subsequently claim the increased non-depreciation P&L Debits against tax. I'm happy that I could argue a time value of money is material and present (even though areeably 3.5% is a little steep). However, my focus is more aimed at the legality of deducting those debits against Tax. What do you think?





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28th Apr 2012 15:13

It is a loan relationship...

... so with unconnected parties, any valid GAAP debit would seem to be deductible.

My discounting the building was facetious humour.  There's merit in your suggestion, but at the same time it makes no sense to me.

Whilst I agree that £215K tomorrow is more of a debt than £215K in (an average) 4 years time, it just doesn't sit well with me that the property doesn't come in at its fair value.


the building's only worth £197K, as a matter of fact.or there's some other consideration (is the property leasehold with perhaps some onerous conditions or covenants?).or your discount rate's too high.

Certainly by my reading, FRS15 is consistent with IAS16, that you bring the fixed asset in at cost (which means the fair value of the consideration per IAS16 and not defined in FRS15, so borrow from FRS7). The fact that you're using the FRSSE doesn't stop the other standards applying (paragraph 5 of the FRSSE) with respect to treatment (it's mainly there to reduce disclosure), unless the FRSSE explicitly states a different treatment (which I'm not aware of).

Whether any of that's right and whether you're right sounds like one for Steve Collins!

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