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.
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
Suggested Books for Further Studies
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“Financial Accounting: An Introduction” by Pauline Weetman
A comprehensive guide to financial accounting principles and practices.
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“UK GAAP 2019” by Ernst & Young
A detailed overview of UK Generally Accepted Accounting Practices and updates.
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“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
### Under FRS 5, what is a key condition for applying linked presentation?
- [ ] The company must be able to reacquire the asset anytime.
- [ ] The asset value must be less than $1 million.
- [x] The company intends to repay the financing from the asset's proceeds.
- [ ] The asset must not generate revenue.
> **Explanation:** A key condition under FRS 5 is that the company intends to repay the financing from the asset's proceeds and is not able to keep the asset upon repayment or reacquire it at any time.
### Under which standards is linked presentation not allowed?
- [x] International Financial Reporting Standards (IFRS)
- [ ] Financial Reporting Standard 5 (FRS 5)
- [ ] US Generally Accepted Accounting Principles (GAAP)
- [ ] None of the above
> **Explanation:** Linked presentation is not allowed under the current International Financial Reporting Standards (IFRS) and Financial Reporting Standard applicable in the UK and the Republic of Ireland.
### What does linked presentation achieve on the balance sheet?
- [ ] It hides the asset value.
- [x] It nets off the asset value and its financing within a single caption.
- [ ] It inflates the company's assets.
- [ ] It avoids showing liabilities.
> **Explanation:** Linked presentation achieves the netting off of the asset value and its associated financing within a single caption on the balance sheet.
### What is the outcome of displaying gross presentation?
- [x] Showing the asset value without deducting associated liabilities.
- [ ] Combining all liabilities into a single line item.
- [ ] Depreciating the asset faster than usual.
- [ ] Removing any financing details.
> **Explanation:** Gross presentation involves showing the asset value on the balance sheet without deducting any associated liabilities or financing.
### Why is linked presentation not allowed under most modern accounting standards?
- [ ] It complicates financial statements.
- [x] It lacks transparency compared to separate presentation of assets and liabilities.
- [ ] It benefits companies too much.
- [ ] It is too complex to implement.
> **Explanation:** Linked presentation is not allowed under most modern accounting standards as it lacks the transparency provided by the separate presentation of assets and liabilities.
### Under linked presentation, what happens to the financing amount?
- [ ] It is hidden entirely.
- [ ] It remains presented separately.
- [x] It is deducted from the gross asset value in a single caption.
- [ ] It is added to the asset value.
> **Explanation:** The financing amount is deducted from the gross asset value within a single asset caption under linked presentation.
### Which type of asset presentation involves showing the gross asset value and then separately listing associated liabilities?
- [x] Conventional asset presentation
- [ ] Linked presentation
- [ ] Historical cost method
- [ ] Fair value measurement
> **Explanation:** Conventional asset presentation involves showing the gross asset value and separately listing associated liabilities.
### What is one of the main purposes of linked presentation in the balance sheet?
- [ ] To simplify bookkeeping records.
- [ ] To increase transparency in financial reports.
- [x] To show the economic benefit associated with the asset net of its financing.
- [ ] To conform to international audit requirements.
> **Explanation:** One of the main purposes of linked presentation is to show the economic benefit associated with the asset net of its financing.
### Can linked presentation be applied to intangible assets?
- [ ] Yes, it is primarily used for intangible assets.
- [x] No, it generally applies to tangible assets.
- [ ] Only if the intangible asset generates revenue.
- [ ] Only in certain jurisdictions.
> **Explanation:** Linked presentation generally applies to tangible assets and not intangible ones under former standards like FRS 5.
### What happens when a company can reacquire the asset at any time under FRS 5?
- [ ] Linked presentation is enforced.
- [x] Linked presentation is not applicable.
- [ ] The asset is shown separately.
- [ ] The liability can be ignored.
> **Explanation:** If a company can reacquire the asset at any time, linked presentation is not applicable under FRS 5 guidelines.
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