FRS 102 updates mean good news for owners of small businesses

FRS 102 updates mean good news for owners of small businesses

Important news if you own a small business, hold investment property or have intangible assets on your balance sheet.

In a rare example of changes in regulations simplifying things for businesses, the March 2018 version of FRS 102 (Financial Reporting Standard 102) contains good news for owners of small businesses, as well as for companies with significant intangible assets or investment property.  As always, there is a little medicine to go with the honey, particularly for the owners of investment property.

For details of how the new version of FRS 102 might impact your business, contact Matt Neill on 01892 546 546 or e-mail

  1. Simplifying directors’ loans

    Small entities are no longer required to recognise loans from directors (or close family) at their discounted present value, where the director (or close family member) is also a shareholder. Since FRS 102 was introduced, clients have complained to us that there is no value in discounting these loans, so this is great news.

    This change removes the burden of estimating a market rate of interest for the loan, which can be particularly challenging and of little benefit; instead, the loan from the director to the business can simply be presented as the original amount which was advanced.

    However this exemption does not apply where an entity has lent money to the director.

  2. Intangible assets made more tangible

    Due to the revised, more restrictive definition of an intangible asset, fewer intangible assets are likely to be recognised separately from goodwill.  Under the previous iterations of FRS 102, goodwill arising on the acquisition of a new company, for example, had to be dissected between its constituent parts, such as trademarks, customer lists and brands, which can be exceedingly difficult to value.

    This treatment has now been relaxed, and intangibles now need to be recognised separately from goodwill only if they:

    • meet the recognition criteria;
    • and are separable and arise from contractual or legal rights.

    The addition of the ‘and’ in italics is the key change here, which will hopefully save time and cost in relation to business combinations, since fewer intangibles will need to be valued separately from goodwill.  In our experience, clients have found this to be an entirely unnecessary exercise, so this is a welcome relaxation of the previous guidance in FRS 102.

  3. Good news, and bad news, if you own investment property

    It is no longer mandatory for property that is rented to another group entity to be presented as investment property (and therefore recognised at fair value at each balance sheet date).  Instead, an accounting policy choice is now available which permits investment property to be held at cost less depreciation, or at fair value.  So no more:

  • Having to fair-value properties at each balance sheet date; or
  • Incur professional fees to have properties valued; or
  • Onerous consolidation adjustments


Positively, if you do decide to transfer investment property to property, plant and equipment on the balance sheet, you won’t lose any revaluation gains to date, as you can move the asset at its fair value, treating it as the deemed cost.

Whilst the above is very much a welcome change, unfortunately the previously available exemption to fair-value investment property on the basis of “undue cost or effort” has been revoked in the March 2018 version of FRS 102.


Most of the amendments come into being for accounting periods beginning on or after 1 January 2019 (i.e. 31 December 2019 year-ends onwards).  However, early adoption is permitted from 1 January 2017 (i.e. 31 December 2017 year-ends), provided that all amendments to FRS 102 are applied (except that, helpfully, early application is permitted in isolation for the aforementioned amendment to directors’ loans to companies).

If you have any questions about the changes detailed here, or any of the other changes  in the revised regulations, and how they could affect your business, please get in touch with Matt Neill, an Associate Director in our Corporate and Business department, at or on 01892 546 546.