Upper Tribunal Tax and Chancery Chamber

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

Fecha: 05-Mar-2025

The “fair value” concept is explored in detail in FRS 7 “Fair Values in Acquisition Accounting”

97.

The “fair value” concept is explored in detail in FRS 7 “Fair Values in Acquisition Accounting”.

98.

At this point, it is important to mention that FRS 7 (like the other FRSs under consideration) is expressly composed of several elements. There is a stated overall “Objective”, set out in paragraph 1. Some definitions are set out in paragraphs 2-3 and then paragraphs 4-31 contain the actual “Statement of Standard Accounting Practice”. There follow further paragraphs (32-85) which are said to comprise the “Explanation”. There is a hierarchy to these various sections. The core provisions are those in the Statement of Standard Accounting Practice, but those provisions are to be “read in the context of the Objective… and the definitions… and also of the Foreword to Accounting Standards and the Statement of Principles for Financial Reporting currently in issue.” The “Explanation” is to be “regarded as part of the Statement of Standard Accounting Practice insofar as it assists in interpreting that statement.”

99.

The “Summary” at the start of FRS 7 (which has no particular status in the hierarchy referred to above) includes the following:

General

a Financial Reporting Standard 7 ‘Fair Values in Acquisition Accounting’ sets out the principles of accounting for a business combination under the acquisition method of accounting. Companies legislation requires the identifiable assets and liabilities of the acquired entity to be included in the consolidated financial statements of the acquirer at their fair values at the date of acquisition. The difference between these and the cost of acquisition is recognised as goodwill or negative goodwill…

Fair values of identifiable assets and liabilities

b The assets and liabilities recognised in the allocation of fair values should be those of the acquired entity that existed at the date of acquisition. They should be measured at fair values that reflect the conditions at the date of the acquisition.

c …

d Fair values should be based on the value at which an asset or liability could be exchanged in an arm’s length transaction…

e Unless they can be measured at market value, the fair values of nonmonetary assets will normally be based on replacement cost, but should not exceed their recoverable amount as at the date of acquisition. The recoverable amount reflects the condition of the assets on acquisition but not any impairments resulting from subsequent events. The FRS specifies the methods for determining fair values of individual categories of assets and liabilities.

100.

FRS 7, in paragraph 1, defines its “Objective” as being to ensure that “when a business entity is acquired by another, all the assets and liabilities that existed in the acquired entity at the date of acquisition are recorded at fair values reflecting their condition at that date…”.