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HMRC internal manual

Corporate Finance Manual

Old rules: derivative contracts: basic rules pre FA 2004: change of accounting method example

Change of accounting method - example

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

At 31 December 2005 Airgrant Ltd has forward cocoa contracts with a market value of £95,000. These contracts do not appear on the company’s balance sheet because it has accounted for its derivative contracts on an accruals basis (see CFM84050). The company changes its accounting policies and accounts for the contracts on a MTM basis from 1 January 2006 onwards. The 2006 balance sheet will show an opening value for derivative contracts of £95,000 and a corresponding credit taken to retained reserves, probably as a prior year adjustment. FA02/SCH26/PARA15(6) ensures this amount is brought into charge.