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HMRC internal manual

Corporate Finance Manual

Old rules: loan relationships: authorised accounting methods: ‘equates to’

‘Equates to’

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

FA96/S86 (5) and (6) explains what is meant by ‘equates to’.

Equates to accruals

Any accounting method that allocates payments to the profit and loss account when they accrue equates to an authorised accruals basis (S86(5)(a)).

Equates to mark to market

Where a company accrues interest, but

  • brings in a fair value of the loan relationship excluding interest
  • the amounts brought in correspond to the amounts that would be brought in under mark to market
  • the accounting method equates to an authorised mark to market basis (S86(6)).

This is also called the ‘clean’ mark to market basis.

Otherwise, any method that

  • brings in amounts that represent fair value
  • allocates payments to the AP in which they become due and payable

equates to mark to market.

Where appropriate, computational adjustments are required to bring the accounting method into line with the rules of FA 1996.