Part 3Trading income

Chapter 14Adjustment on change of basis

Adjustment on change of basis

182Calculation of the adjustment

The amount of the adjustment is calculated as follows. Step 1

Add together any amounts representing the extent to which, comparing the two bases, profits were understated (or losses overstated) on the old basis.

The amounts are—

Amounts

1

Receipts which on the new basis would have been brought into account in calculating the profits of a period of account before the change, so far as they were not so brought into account.

2

Expenses which on the new basis fall to be brought into account in calculating the profits of a period of account after the change, so far as they were brought into account in calculating the profits of a period of account before the change.

3

Deductions in respect of opening trading stock or opening work in progress in the first period of account on the new basis, so far as they—

  1. (a)

    are not matched by credits in respect of closing trading stock or closing work in progress in the last period of account before the change, or

  2. (b)

    are calculated on a different basis that if used to calculate those credits would have given a higher figure.

4

Amounts recognised for accounting purposes in respect of depreciation in the last period of account before the change, so far as they were not the subject of an adjustment for corporation tax purposes, where such an adjustment would be required on the new basis.

Step 2

Then deduct any amounts representing the extent to which, comparing the two bases, profits were overstated (or losses understated) on the old basis.

The amounts are—

Amounts

1

Receipts which were brought into account in a period of account before the change, so far as they would not have been so brought into account if the profits had been calculated on the new basis.

2

Expenses which were not brought into account in calculating the profits of a period of account before the change, so far as they—

  1. (a)

    would have been brought into account for a period of account before the change if the profits had been calculated on the new basis, and

  2. (b)

    would have been brought into account for a period of account after the change if the profits had continued to be calculated on the old basis.

3

Credits in respect of closing trading stock or closing work in progress in the last period of account before the change, so far as they—

  1. (a)

    are not matched by deductions in respect of opening trading stock or opening work in progress in the first period of account on the new basis, or

  2. (b)

    are calculated on a different basis that if used to calculate those deductions would have given a lower figure.

An amount so deducted may not be deducted again in calculating the profits of a period of account.