CFM23096 - New UK GAAP: FRS 105: financial instruments: derecognition

For those entities applying FRS 105 with an accounting period beginning on or after 1 January 2016.

‘Recognition’ refers to the requirement to recognise all financial assets and liabilities, including derivatives, on an entity’s balance sheet.

Under FRS 105, a micro-entity must recognise a financial asset or financial liability only when it becomes a party to the contractual provisions of the instrument.

For example, if a micro-entity receives a firm order for goods from a customer, it should delay recognition of the trade debt until at least one of the parties has performed under the agreement - which will normally be when the goods are shipped or delivered.

In contrast, however, a forward contract or option is recognised on the commitment date if it falls within the scope of FRS 105.

Derecognition

‘Derecognition’ means the removal of a previously recognised financial asset or financial liability from the balance sheet. CFM23097 explains derecognition of a financial asset, and CFM23098 explains derecognition of a financial liability.