Definition of Linked Presentation§
Linked presentation is an accounting method for presenting an asset and its associated financing in the balance sheet. Under this approach, the asset is shown at its gross value, and the related finance is deducted from this value within a single asset caption. This method was primarily allowed under Financial Reporting Standard (FRS) 5, provided that the company intended to repay the financing from the asset’s proceeds and was not capable of retaining the asset on repayment or reacquiring it any time.
Examples§
Example 1: Machine Financing§
Company A purchases a machine for $100,000 and finances it through a loan of $80,000. Under linked presentation, Company A would show the machine at $100,000 and deduct the $80,000 loan from this value, resulting in a net asset of $20,000 presented in the balance sheet under a single line item.
Example 2: Property Lease§
Company B finances a property costing $1,000,000 with a lease agreement whereby they are obligated to make lease payments of $900,000 over the life of the lease. Under linked presentation, the property would be shown at $1,000,000, and the lease liability of $900,000 would be deducted, showing a net asset of $100,000.
FAQs§
What are the primary conditions for linked presentation under FRS 5?§
The primary conditions under Financial Reporting Standard 5 involve the company’s intention to repay the financing from the proceeds of the asset and the inability to retain or reacquire the asset at any time.
Is linked presentation allowed under current UK accounting standards?§
No, the linked presentation approach is not permitted under the current Financial Reporting Standard applicable in the UK and the Republic of Ireland or under International Financial Reporting Standards (IFRS).
What is the main difference between linked presentation and conventional asset presentation?§
In linked presentation, the asset and its related financing are shown together within a single caption, contrasting with conventional asset presentation, where the asset and liability are presented separately on the balance sheet.
Related Terms§
Gross Presentation§
Definition: The representation of an asset on the balance sheet without deducting any associated liabilities or financing.
Financial Reporting Standard (FRS) 5§
Definition: A standard that provided detailed guidance on the presentation, measurement, recognition, and disclosure of transactions in financial statements.
International Financial Reporting Standards (IFRS)§
Definition: Global accounting standards developed by the International Accounting Standards Board (IASB) aiming to bring consistency to accounting language, practices, and statements.
UK Generally Accepted Accounting Principles (GAAP)§
Definition: The standard framework of guidelines for financial accounting used in the UK, covering various aspects of accounting policies and disclosures.
Online Resources§
- Financial Reporting Council
- International Financial Reporting Standards (IFRS) Foundation
- Chartered Institute of Management Accountants (CIMA)
Suggested Books for Further Studies§
-
“Financial Accounting: An Introduction” by Pauline Weetman
A comprehensive guide to financial accounting principles and practices. -
“UK GAAP 2019” by Ernst & Young
A detailed overview of UK Generally Accepted Accounting Practices and updates. -
“International Financial Reporting Standards (IFRS) 2019” by Wiley
A complete guide to the latest global accounting standards by the IFRS.
Accounting Basics: “Linked Presentation” Fundamentals Quiz§
Thank you for embarking on this journey through our comprehensive accounting lexicon and tackling our challenging sample exam quiz questions. Keep striving for excellence in your financial knowledge!
