FRS 102: fair value

Fundamental to FRS 102 is the concept of ‘Fair Value’. Fair value is the amount for which an asset, liability or equity instrument could be exchanged or settled between knowledgeable, willing parties in an arm’s length transaction. In some instances you may require expert advice to determine a fair value.

Property, plant and equipment

A class of assets may be measured at fair value. Whilst there are no fixed intervals when revaluations must be performed, they must be performed with sufficient regularity to ensure that the carrying value does not materially differ from its fair value at the reporting date.

Investment property

Investment property whose fair value can be reliably measured without undue cost or effort must be measured at fair value with gains and losses recognised in profit and loss.

Financial instruments

Under FRS 102 certain instruments must be measured at fair value with gains and losses recognised in profit and loss (eg interest rate swaps/options, forward contracts, commodity contracts, some debt instruments and investments in non-convertible and non-puttable shares that are publicly traded or their fair value can be estimated reliably).

Investments

In individual entity accounts, investments in subsidiaries, associates and jointly controlled entities may be held at cost less impairment or fair value with gains and losses recognised in a revaluation reserve or, in certain circumstances, profit and loss. A parent may also opt to recognise fair value gains and losses entirely in profit or loss.

Business combinations

Intangible assets whose fair value can be measured reliably need to be recognised separately from goodwill on acquisition ie intellectual property, customer contracts, relationships, in-process R&D.

Biological assets

A living animal or plant may be measured at fair value (if fair value can be measured reliably) with gains and losses recognised in profit and loss or held at depreciated historical cost. The policy must be applied consistently to each class of biological asset and its related agricultural produce.

For more information please get in touch with Danielle Stewart.