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HMRC internal manual

Corporate Finance Manual

Old rules: loan relationships: authorised accounting methods: what are authorised accounting methods?

Introduction to accounting methods

This guidance applies to periods of account beginning before 1 January 2005

The two authorised accounting methods are

  • accruals
  • mark to market.

Mark to market is normally used in limited circumstances by financial institutions and by similar businesses that trade in debt for accounting purposes. Other companies will nearly always use the accruals basis.


FA96/S85(2) sets out the general conditions that authorised accounting methods must satisfy. They must

  • follow the generally accepted accounting practice appropriate in that case,
  • contain proper provision for allocating payments arising from both loan relationships and related transactions,
  • contain proper provision for determining exchange gains and losses.

For accruals only, there must be no write-down of the value of a loan relationship, other than

  • provisions for exchange gains and losses, and
  • authorised arrangements for bad debts.

For example, a basis that brings debt assets into account at the lower of cost or net realisable value does not conform with an authorised accruals basis.