The Loan Relationships and Derivative Contracts (Change Of Accounting Practice) Regulations 2004

Amounts recognised in determining a company’s profit or loss in relation to held-to-maturity assets

5.—(1) Subject to paragraph (6), if the assets representing a loan relationship of a company satisfy the conditions prescribed in paragraph (5) and in accordance with generally accepted accounting practice those assets—

(a) were previously dealt with for accounting purposes on an amortised cost basis of accounting and

(b) are subsequently required to be dealt with for accounting purposes on the basis of fair value accounting,

the debits and credits to be brought into account for the purposes of Chapter 2 of Part 4 of the Finance Act 1996 shall continue to be determined on an amortised cost basis of accounting.

(2) Subject to paragraph (6), the amounts described in paragraphs (3) and (4) are excluded from section 85B(1) of the Finance Act 1996 in the circumstances specified in those paragraphs.

(3) If the assets representing a loan relationship of a company satisfy the conditions prescribed in paragraph (5), the amount is any debit or credit representing the difference between the carrying value of the asset recognised for accounting purposes at the time the company ceased to treat the asset as held-to-maturity and the fair value of the asset immediately after that time.

(4) If the assets representing a loan relationship of a company cease to satisfy the conditions prescribed in paragraph (5), the amount is any debit or credit representing profits or losses—

(a) brought into account in the statement of realised gains or losses or statement of changes in equity for the periods in which the asset was treated as available-for-sale,

(b) which are transferred from the statement of realised gains or losses or statement of changes in equity for the period in which the company ceased to satisfy the conditions in paragraph (5), and

(c) which are brought into account in the company’s profit and loss account or income statement for the period in which the company ceased to satisfy the conditions in paragraph (5) and any subsequent accounting period.

(5) The conditions prescribed in relation to an asset are that—

(a) in accordance with generally accepted accounting practice, it is treated at any time as available-for-sale,

(b) in accordance with generally accepted accounting practice, it has at any previous time been treated as held-to-maturity,

(c) it becomes treated as available-for-sale as a result of the disposal by the company of one or more assets previously treated as held-to-maturity, and

(d) the amortised cost of the asset or assets disposed of (referred to in paragraph (c)) in the accounting period in which the disposal was made is greater than 10% of the amortised cost of all the assets then treated by the company as held-to-maturity in that period.

(6) A company may elect that this regulation does not apply.

(7) An election under paragraph (6) applies to all of the company’s assets which satisfy the conditions in paragraph (5).

(8) An election under paragraph (6)—

(a) shall be made by notice in writing to the Inland Revenue,

(b) within 90 days of the end of the company’s accounting period in which the disposal mentioned in paragraph (5)(c) took place,

has effect for the succeeding accounting period and all subsequent accounting periods until the assets representing a loan relationship of the company cease to satisfy the conditions prescribed in paragraph (5).