UT-2023-000116; - [2025] UKUT 00164 (TCC)

The relevant statutory provision which represents the foundation of GAAP is paragraph 9(2), Schedule 4A, Companies Act 1985 (“CA85”), which sets out “the acquisition method of accounting” as requiring that:

“The identifiable assets and liabilities of the undertaking acquired shall be included in the consolidated balance sheet at their fair values at the date of acquisition. In this paragraph the “identifiable” assets or liabilities of the undertaking acquired means the assets or liabilities which are capable of being disposed of or discharged separately, without disposing of a business of the undertaking.”

For the purposes of this decision, the relevant extracts from the Financial Reporting Standards (“FRS”) are recorded in the Decision at FTT [91]-[105] and were not in contention. We set out these paragraphs from the Decision in Appendix 1 to this decision. We should mention that we have not set out FRS15, which played a major role in HMRC’s case before the FTT, but which the FTT considered did not arise and which was not relied upon by either party before us: FTT [216(1)]. We should, however, set out FRS 7.9 which lay at the centre of this appeal and which provided:

“Tangible fixed assets

9 The fair value of a tangible fixed asset should be based on:

(a)

market value, if assets similar in type and condition are bought and sold on an open market; or

(b)

depreciated replacement cost, reflecting the acquired business’s normal buying process and the sources of supply and prices available to it.

The fair value should not exceed the recoverable amount of the asset.”

In Appendix 2 we set out the FTT’s description (at FTT [116]-[145]) of the relevant Royal Institution of Chartered Surveyors (“RICS”) Appraisal and Valuation Manual (known as the “Red Book”). Again, the FTT’s description was not in contention.