LAM13050 - Transfers of long-term business: Accounting for business transfers

Accounting for Part VII transfers can give rise to a wide range of different outcomes depending upon several factors:

• whether IFRS or UK GAAP (FRSs 102 and 103) accounting is adopted, which is something that can differ between transferor and transferee.
• whether the transaction is a business combination.
• whether the transaction is between companies under common control.

Generally speaking, unless there is a full reinsurance before the Part VII transfer, the transferor will recognise a profit or loss in their income statement based on the difference between the carrying values of the transferred assets and liabilities in their accounts at the time of the transfer, and the consideration received, if any. However in the case of the transferee there is a wider range of accounting possibilities – particularly for transactions between group companies.

For all business transfers one of the key issues is whether the transferee ought to recognise an asset representing the Present Value of In–Force business (PVIF) and, separately, goodwill. PVIF and goodwill together represent the excess of the price the transferee has paid for the business acquired over the fair value of the assets acquired, although the reverse scenario, giving rise to negative goodwill, is also theoretically possible under UK GAAP. Under IFRS negative goodwill cannot arise and the credit would be recognised as income in the income statement. An illustration of the variations in accounting treatments of Part VII transfers under UK GAAP and IFRS depending on the facts is included in LAM13200.