Corporation Tax Act 2009 section 313

Basis of accounting: "amortised cost basis", "fair value accounting" and "fair value"

Section 313 establishes which accounting bases a company may use when calculating the credits and debits on its loan relationships, and defines the key terms "amortised cost basis of accounting", "fair value accounting" and "fair value".

• A company may generally use any basis of accounting that complies with generally accepted accounting practice (GAAP) to determine the credits and debits on its loan relationships.
• However, certain specific provisions in the Act override this general rule and require either the amortised cost basis or the fair value basis to be used in particular circumstances, such as connected company relationships, company partnerships using fair value, index-linked gilts, discounts on relevant non-lending relationships, and holdings in OEICs, unit trusts and offshore funds.
• The amortised cost basis of accounting means measuring the loan relationship asset or liability on the balance sheet at its amortised cost using the effective interest method, with an adjustment where the loan relationship is the hedged item under a designated fair value hedge.
• Fair value accounting means measuring assets and liabilities at their fair value on the balance sheet, with any changes in fair value recognised as items of profit or loss.