SECTION BE+W+SVALUATION RULESHISTORICAL COST ACCOUNTING RULES
PreliminaryE+W+S
23Subject to paragraphs 39 to 44 of this Part of this Schedule, the amounts to be included in respect of all items shown in a company’s accounts shall be determined in accordance with the rules set out in paragraphs 24 to 38 of this Part of this Schedule.
Fixed assetsE+W+S
General rulesE+W+S
24Subject to any provision for depreciation or diminution in value made in accordance with paragraph 25 or 26 the amount to be included in respect of any fixed asset shall be its cost.
25In the case of any fixed asset which has a limited useful economic life, the amount of:
(a)its cost; or
(b)where it is estimated that any such asset will have a residual value at the end of the period of its useful economic life, its cost less that estimated residual value;
shall be reduced by provisions for depreciation calculated to write off that amount systematically over the period of the asset’s useful economic life.
26(1)Where a fixed asset investment of a description falling to be included under Assets items 7 (Participating interests) or 8 (Shares in group undertakings) in the balance sheet format, or any other holding of securities held as a financial fixed asset, has diminished in value, provisions for diminution in value may be made in respect of it and the amount to be included in respect of it may be reduced accordingly; and any such provisions which are not shown in the profit and loss account shall be disclosed (either separately or in aggregate) in a note to the accounts.
(2)Provisions for diminution in value shall be made in respect of any fixed asset which has diminished in value if the reduction in its value is expected to be permanent (whether its useful economic life is limited or not), and the amount to be included in respect of it shall be reduced accordingly; and any such provisions which are not shown in the profit and loss account shall be disclosed (either separately or in aggregate) in a note to the accounts.
(3)Where the reasons for which any provision was made in accordance with sub-paragraph (1) or (2) have ceased to apply to any extent, that provision shall be written back to the extent that it is no longer necessary; and any amounts written back in accordance with this sub-paragraph which are not shown in the profit and loss account shall be disclosed (either separately or in aggregate) in a note to the accounts.
Development costsE+W+S
27(1)Notwithstanding that amounts representing “development costs” may be included under Assets item 9 in the balance sheet format, an amount may only be included in a company’s balance sheet in respect of development costs in special circumstances.
(2)If any amount is included in a company’s balance sheet in respect of development costs the following information shall be given in a note to the accounts:
(a)the period over which the amount of those costs originally capitalised is being or is to be written off; and
(b)the reasons for capitalising the development costs in question.
GoodwillE+W+S
28(1)The application of paragraphs 24 to 26 in relation to goodwill (in any case where goodwill is treated as an asset) is subject to the following provisions of this paragraph.
(2)Subject to sub-paragraph (3) below the amount of the consideration for any goodwill acquired by a company shall be reduced by provisions for depreciation calculated to write off that amount systematically over a period chosen by the directors of the company.
(3)The period chosen shall not exceed the useful economic life of the goodwill in question.
(4)In any case where any goodwill acquired by a company is included as an asset in the company’s balance sheet the period chosen for writing off the consideration for that goodwill and the reasons for choosing that period shall be disclosed in a note to the accounts.
Intangible and tangible fixed assetsE+W+S
29Assets included in Assets items 9 (Intangible fixed assets) and 10 (Tangible fixed assets) in the balance sheet format shall be valued as fixed assets.
Other fixed assetsE+W+S
30Other assets falling to be included in the balance sheet shall be valued as fixed assets where they are intended for use on a continuing basis in the company’s activities.
Financial fixed assetsE+W+S
31(1)Debt securities, including fixed income securities, held as financial fixed assets shall be included in the balance sheet at an amount equal to their maturity value plus any premium, or less any discount, on their purchase, subject to the following provisions of this paragraph.
(2)The amount included in the balance sheet with respect to such securities purchased at a premium shall be reduced each financial year on a systematic basis so as to write the premium off over the period to the maturity date of the security and the amounts so written off shall be charged to the profit and loss account for the relevant financial years.
(3)The amount included in the balance sheet with respect to such securities purchased at a discount shall be increased each financial year on a systematic basis so as to extinguish the discount over the period to the maturity date of the security and the amounts by which the amount is increased shall be credited to the profit and loss account for the relevant years.
(4)The notes to the accounts shall disclose the amount of any unamortised premium or discount not extinguished which is included in the balance sheet by virtue of sub-paragraph (1).
(5)For the purposes of this paragraph “premium” means any excess of the amount paid for a security over its maturity value and “discount” means any deficit of the amount paid for a security over its maturity value.
Current assetsE+W+S
32The amount to be included in respect of loans and advances, debt or other fixed income securities and equity shares or other variable yield securities not held as financial fixed assets shall be their cost, subject to paragraphs 33 and 34 below.
33(1)If the net realisable value of any asset referred to in paragraph 32 is lower than its cost the amount to be included in respect of that asset shall be the net realisable value.
(2)Where the reasons for which any provision for diminution in value was made in accordance with sub-paragraph (1) have ceased to apply to any extent, that provision shall be written back to the extent that it is no longer necessary.
34(1)Subject to paragraph 33 above, the amount to be included in the balance sheet in respect of transferable securities not held as financial fixed assets may be the higher of their cost or their market value at the balance sheet date.
(2)The difference between the cost of any securities included in the balance sheet at a valuation under sub-paragraph (1) and their market value shall be shown (in aggregate) in the notes to the accounts.
Miscellaneous and supplementary provisionsE+W+S
Excess of money owed over value received as an asset itemE+W+S
35(1)Where the amount repayable on any debt owed by a company is greater than the value of the consideration received in the transaction giving rise to the debt, the amount of the difference may be treated as an asset.Schedule 1Part I
(2)Where any such amount is so treated:
(a)it shall be written off by reasonable amounts each year and must be completely written off before repayment of the debt; and
(b)if the current amount is not shown as a separate item in the company’s balance sheet it must be disclosed in a note to the accounts.
Determination of costE+W+S
36(1)The cost of an asset that has been acquired by the company shall be determined by adding to the actual price paid any expenses incidental to its acquisition.
(2)The cost of an asset constructed by the company shall be determined by adding to the purchase price of the raw materials and consumables used the amount of the costs incurred by the company which are directly attributable to the construction of that asset.
(3)In addition, there may be included in the cost of an asset constructed by the company:
(a)a reasonable proportion of the costs incurred by the company which are only indirectly attributable to the construction of that asset, but only to the extent that they relate to the period of construction; and
(b)interest on capital borrowed to finance the construction of that asset, to the extent that it accrues in respect of the period of construction;provided, however, in a case within sub-paragraph (b) above, that the inclusion of the interest in determining the cost of that asset and the amount of the interest so included is disclosed in a note to the accounts.
37(1)Subject to the qualification mentioned below, the cost of any assets which are fungible assets (including investments) may be determined by the application of any of the methods mentioned in sub-paragraph (2) below in relation to any such assets of the same class.The method chosen must be one which appears to the directors to be appropriate in the circumstances of the company.
(2)Those methods are:
(a)the method known as “first in, first out” (FIFO);
(b)the method known as “last in, first out” (LIFO);
(c)a weighted average price; and
(d)any other method similar to any of the methods mentioned above.
(3)Where in the case of any company:
(a)the cost of assets falling to be included under any item shown in the company’s balance sheet has been determined by the application of any method permitted by this paragraph; and
(b)the amount shown in respect of that item differs materially from the relevant alternative amount given below in this paragraph;the amount of that difference shall be disclosed in a note to the accounts.
(4)Subject to sub-paragraph (5) below, for the purposes of sub-paragraph (3)(b) above, the relevant alternative amount, in relation to any item shown in a company’s balance sheet, is the amount which would have been shown in respect of that item if assets of any class included under that item at an amount determined by any method permitted by this paragraph had instead been included at their replacement cost as at the balance sheet date.
(5)The relevant alternative amount may be determined by reference to the most recent actual purchase price before the balance sheet date of assets of any class included under the item in question instead of by reference to their replacement cost as at that date, but only if the former appears to the directors of the company to constitute the more appropriate standard of comparison in the case of assets of that class.
Substitution of original amount where price or cost unknownE+W+S
38Where there is no record of the purchase price of any asset acquired by a company or of any price, expenses or costs relevant for determining its cost in accordance with paragraph 36, or any such record cannot be obtained without unreasonable expense or delay, its cost shall be taken for the purposes of paragraphs 24 to 34 to be the value ascribed to it in the earliest available record of its value made on or after its acquisition by the company.