Part 5Loan Relationships

Chapter 3The credits and debits to be brought into account: general

Adjustments on change of accounting basis

318Change of accounting F1basis following cessation of loan relationship

(1)

This section applies if—

(a)

the company has ceased to be a party to a loan relationship in an accounting period (“the cessation period”),

F2(b)

section 330A (company is not, or has ceased to be, party to loan relationship) applied to the cessation, and

(c)

there is a difference between the amount outstanding in respect of the loan relationship (see subsection (5))—

(i)

at the end of the earlier period, and

(ii)

at the beginning of the later period.

F3(2)

A credit or debit (as the case may be) of an amount equal to the difference must be brought into account for the purposes of this Part for the later period in the same way as a credit or debit which is brought into account in determining the company's profit or loss for that period in accordance with generally accepted accounting practice.

(4)

F4Subsection (2) does not apply so far as the credit or debit falls to be brought into account apart from this section.

F5(5)

In this section “the amount outstanding in respect of the loan relationship” means—

(a)

so much of the recognised deferred income or recognised deferred loss from the loan relationship as has not been represented by credits or debits brought into account under this Part in respect of the relationship, and

(b)

any amounts relating to the matters mentioned in section 306A(1) in respect of the loan relationship that have in accordance with generally accepted accounting practice been recognised in the company's accounts as items of other comprehensive income and not transferred to become items of profit or loss.

(6)

In subsection (5)—

“recognised deferred income”, in relation to a loan relationship, means the amount recognised in the company's balance sheet in accordance with generally accepted accounting practice as deferred income in respect of the profits which arose from the relationship or a related transaction in the cessation period, and

“recognised deferred loss”, in relation to a loan relationship, means the amount so recognised as deferred loss in respect of the losses which so arose.

F6(7)

In determining what amounts fall within subsection (5)(b) at the beginning or end of a period, it is to be assumed that the accounting policy applied in drawing up the company's accounts for the period was also applied in previous periods.

(8)

But if the company's accounts for the period are in accordance with generally accepted accounting practice drawn up on an assumption as to the accounting policy in previous periods which differs from that mentioned in subsection (7), that different assumption applies in determining what amounts fall within subsection (5)(b) at the beginning or end of the period.