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The Financial Reporting Standard FRS 102

FRS 102 The Financial Reporting Standard applicable in the UK and Republic of Ireland becomes mandatory for accounting periods starting on or after 1 January 2015, with earlier adoption permissible.

Section 17 Property, Plant and Equipment (PPE). is currently dealt with in FRS 15 Tangible Fixed Assets and there are some notable differences between the two. Section 17 deals with PPE that:

  • are held for use in the production or supply of goods or services, for rental to others, or for administrative purposes
  • are expected to be used for more than one period

The recognition criterion under FRS 102 has remained unchanged from current practice and a client can recognise PPE if (and only if):

  • it is probable that future economic benefits associated with the item will flow to the entity 
  •  the cost of the item can be measured reliably

Paragraph 17.5 to FRS 102 deals with spare parts and servicing equipment, and requires ‘major’ spare parts and stand-by equipment to be included within the cost of the fixed asset(s) to which it/they relate(s) when the client is expected to use them for more than one year. The paragraph also goes on to require that if the spare parts and servicing equipment are only able to be used in connection with an item of PPE, then they are considered PPE.

Where ‘major components’ of an item of PPE have significantly different patterns of consumption, the client must allocate the initial cost of the asset to its major components and then depreciate them separately over its useful economic life.

As with FRS 15, once the item of PPE has been recognised at cost, it can then be subsequently measured using the ‘cost’ model or the ‘revaluation’ model. There is no change to current accounting practice in this respect and all assets in the same class are subjected to the same subsequent measurement (whether it be cost or revaluation).

Section 16 continues to recognise the straight-line method, diminishing balance (commonly referred to as ‘reducing balance’) method and an alternative method based on usage and cites the use of the ‘units of production’ method.

Tonmoy Kumar, Manager of the Accounts Department of ABDS comments:
“There are many areas to watch out for with these new proposals, but as in all cases, once it is in place and initial rulings have been made, it will become more clear and workable. But, as always, contact us if you need any advice on such matters.”

ABDS Chartered Certified Accountants of Southampton.
Tel: 023 8083 6900  E-mail:

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