The most common example is where there is a loan relationship between connected companies

The most common example is where there is a loan relationship between connected <a href="https://paydayloanstennessee.com/cities/brentwood/">payday advance Brentwood Brentwood</a> companies

  • all derivatives (including interest rate swaps, a forward commitment to purchase a commodity that is capable of being cash-settled, and options and forward contracts)
  • loans that aren’t plain vanilla debt – where, for example, the amount repayable can vary or where non-standard interest rates are used
  • investments in convertible debt where the return to the holder can vary with the price of the issuer’s equity shares rather than just with market interest rates [footnote 3]

IAS 39 option

  • assets and liabilities held for trading purposes or speculatively
  • assets and liabilities designated at the outset by the company as at fair value through profit and loss
  • all derivative financial instruments

Tax treatment

A particular aspect of the taxation of loan relationships and derivative contracts is that it departs from the normal principle of looking only at the profit and loss account (or income statement). The legislation ensures that most items taken to ‘reserves’ are brought into account. This would include amounts recognised in the STRGL under Old UK GAAP and amounts recognised as items of OCI under FRS102 or IAS . A further rule ensures that where a profit or a loss from a loan relationship or derivative contract is recognised directly to equity, then this would be brought into account in the same way as if it was recognised to profit or loss or through reserves. Read more