FRS 102 – Key impacts on retail businesses

The adoption of FRS 102 for small entities is fast approaching – with periods beginning on or after 1 January 2016. This will see a number of key changes for retail businesses that could affect the reporting figures for the comparative, current or future periods.

Key impacts on retail businesses

FRS 102 and lease accounting

Many retail operations will have a number of leases for their retail stores and warehouses. Operating lease incentives will now be spread over the whole life of the lease rather than to the rent review date.

FRS 102 and employee benefits

The majority of retail businesses will have a significant number of employees, with a high volume of temporary staff. Holiday pay should now be accounted for as an accrual or prepayment.

This can lead to an administrative burden of ensuring that the company is maintaining accurate records of employee’s holiday usage in order for these calculations to be performed on a reliable basis.

FRS 102 and foreign currency hedging

Many retail businesses import or export goods or services outside the UK, and use forward contracts to mitigate the risk of unfavourable foreign currency fluctuations. FRS102 treats the sale and forward contract as two separate transactions.

There is no option to use the forward rate when recording the purchase or sale of goods and services, these should be accounted for at the spot rate and then translated to the closing rate at the year end with the differences being reported in the profit or loss.

Forward currency contracts are treated as ‘other financial instruments’ and recognised at fair value on initial recognition, and again at the balance sheet date, with any changes in fair value also being reported in the profit or loss.

FRS 102 and intangible assets other than goodwill

Retail businesses will still have a choice whether to capitalise or write off development costs if a certain criteria can be met. Where no reliable estimate can be made, the useful life of any assets cannot exceed 10 years (currently 20 years) and no infinite life is allowable.

FRS 102 and transitional rules

FRS 102 requires full retrospective treatment on first time adoption, and therefore the above changes will also need to be considered at the transition date, typically the start of the comparative accounting period.

For help or advice on the impact of these changes on your business and how best to respond to them, contact our team of retail specialists.

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