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HMRC internal manual

Corporate Finance Manual

Accounting for corporate finance: UK GAAP before 1 January 2005: lenders: mark to market

Mark to market basis

The accruals basis does not reflect any change in the market value of the loan. In certain circumstances this would give a misleading impression of the results for the year because, for example, the trade of the company is the buying and selling of loan relationships. Banks and insurance companies in such circumstances will adopt what some people call a mark to market basis of accounting (see CFM22010).

If a company is seeking to adopt a mark to market basis for its loan relationships and is not within the financial sector you should seek the advice of an HMRC Accountant.

Balance sheet

When a mark to market basis is adopted the loan is included in the balance sheet at its market value. This is the price at which a willing, informed seller could sell the loan to a willing, informed buyer at the balance sheet date.

The market value will only be dependent on the future cash flows arising from the loan and so all past cash flows, such as incidental costs, past receipts of interest and purchase price, are irrelevant.

CFM22210 explains the treatment of the profit and loss account.