Up until this section, FRS 3 has restructured the P&L, defined the difference between
ordinary, exceptional and extraordinary activities. Now, FRS 3 takes us a step further.
Let us suppose that we have made a holding gain of $50,000, which means that we
have purchased an asset, and through time, it appreciated in terms of value, and now it
is worth $50,000 more than it used to at the time of purchase.
Well, anyone who studied how to revalue assets, which they should before reaching
this topic in their studies, knows that revaluation gains are only recognized if a
professional external value valued the asset. The holding gain would then be
transferred to the revaluation reserve (subject to the deduction of any related
So now, we have $50,000 in a revaluation reserve. How do we know that this 50,000
relates to this year? Furthermore, what about other reserves, and other holding gains
or holding losses? Would an average user understand these terminologies and how
they affect the financial position of the company as a whole?
Well, to answer these questions, as well as other reasons, FRS 3 introduced the idea
of a Statement of Total Recognized Gains and Losses, which brings together the
information from the profit and loss account, the balance sheet and other supporting
notes for asset revaluations. The following format demonstrates how this is done:
Statement of Total Recognized Gains and Losses
Profit for the financial year $M
(I.e. profit after tax and extraordinary items if any) 29
Unrealized surplus on revolution of properties 4
Unrealized loss on trade investment (3)
Foreign currency translation differences (2)
Total gains and losses recognized since last annual report 28
The previous topics dealt mostly with the reasons for accounting standards, their
concepts, how they’re regulated and some of their limitations. Along with FRS 3 and
FRS 18, we will now be discussing further accounting issues which are the subject of
FRS 3 introduced the idea of disclosure in the form of notes, the reason being is that in
order for the financial statements to provide a true and fair view of the company’s
activities they must include all the information necessary for an understanding of the
Yet, up until now, we have only dealt with those events that have occurred during the
current accounting period. But what about activities that occur after the balance sheet
date? Well, prudence would have us provide a provision for it, wouldn’t it? The accruals
would say if it’s affecting the position of the company at the balance sheet date, then a
provision too should be provided.
E.g. suppose that at the 10th of January, the company decides to go into liquidation and the company is yet to publish its accounts for the year up to 31/12/2003. Would the
company go ahead and publish its financial statements with any adjustments or
disclosure? Please bear in mind that the accounts were initially prepared on the basis of
the going concern concept.
I believe that you got the idea now. Well, SSAP 17 says okay, any event that occurs
after the b/s date is called a post balance sheet event, some of which may need to be
disclosed without adjusting the balance sheet, while some may need to be disclosed
whilst adjusting the balance sheet.