Commentary

D1.731 Loan relationships—Exchange gains and losses

Corporate tax
Corporate tax | Commentary

D1.731 Loan relationships—Exchange gains and losses

Corporate tax | Commentary

D1.731 Loan relationships—Exchange gains and losses

Most UK companies prepare their accounts in sterling. They convert all amounts denominated in a foreign currency into sterling. For instance if a foreign security is acquired, it is entered into the books at the sterling equivalent of its cost at the date of purchase, and at the end of each accounting period it is revalued by reference to the sterling equivalent at the accounting date. Exchange movements will also be recognised on a company's loan relationships where a company has a non-sterling functional currency and it is a party to a loan relationship which is denominated in another currency. As above, the loan relationship will be translated into its equivalent amount in the company functional currency at the date of which the company becomes a party to the loan relationship and the loan relationship will then be revalued at the end of each accounting period by reference to the spot exchange rate between the relevant currencies at that time.

For periods of account beginning on or after 1 January 2016 the general rule is that exchange movements that are recognised as an item of profit or loss in a company's accounts in accordance with generally accepted accounting practice will be brought into account in computing its loan relationship profits in the accounting period in which they are so recognised1. Express provision excludes:

  1.  

    •     any exchange gain or loss that arises as a

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