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HMRC internal manual

Corporate Finance Manual

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HM Revenue & Customs
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FRS 102: classification of financial instruments

FRS 102 classifies financial instruments into two categories - basic and other.

‘Basic’ financial instruments are those considered to have straightforward terms - examples provided in Section 11 of FRS 102 include cash, trade debtors, trade creditors and debt instrument (such as an account, note, or loan receivable or payable) that meets the conditions in paragraph 11.9.

‘Other’ or ‘non-basic’ financial instruments refer to all other financial instruments. In particular the following are examples of instruments which will now be typically be held at fair value in accordance with Section 12 of FRS 102:

  • All derivatives (including interest rate swaps; a forward commitment to purchase a commodity that is capable of being cash-settled; options and forward contracts, etc.);
  • Loans that are not plain vanilla debt - where, for example, the amount repayable can vary or where non-standard interest rates are used; and
  • 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

The requirements of Section 12 of FRS 102 represent a significant change from Old UK GAAP (both where FRS 26 has and has not been adopted). It is likely that many more financial instruments will be required to be fair valued under FRS 102 than is currently the case under Old UK GAAP.