This guidance describes the post-FA 2002 taxation of loan
relationships, derivative contracts and FOREX.
Industries Ltd prepares its accounts in euros. Exchange
differences will therefore be recognised in those accounts by
reference to the euro rather than sterling. For this company, this
is correct accounting practice in accordance with SSAP20.
The company makes a Case I loss before capital allowances in
APE 31/12/2010 of €113,250.
The capital allowances pool b/f at 31/12/2009 is
€20,000, with additions of €7,000 in 2010.
Compute capital allowances in euros.
| Pool b/f | 20,000 |
| Expenditure | 7,000 |
| Pool | 27,000 |
| CAs at 25% | 6,750 |
| Pool c/f | 23,250 * |
Total euro loss is therefore €120,000 (€113,250 +
€6,750)
As the company did not make a profit, it need only translate
the loss to the extent it is used in the year. Fellow group company
Properties Ltd has made a profit of £50,000 in APE 31/12/2010.
The group therefore decides to surrender part of the euro loss as
group relief.
The company translates using the London closing exchange rate
at 31/12/2010. Assuming the rate was 0.6107, then £50,000 =
€81,873.
Properties Ltd receives group relief of £50,000.
Losses carried forward by Industries Ltd are €38,127.
The carried forward amount shown on the CT return will be
£23,284. See
CFM10528.
