Commentary on Sections Overview Chapter 3: Credits and debits to be brought into account: general Section 604: Credits and debits treated as relating to capital expenditure
1630.This section brings a credit or debit that is treated in the accounts as part of a fixed capital asset or project into account under this Part in the same way as a credit or debit that is brought into account in determining the company’s profit or loss. It is based on paragraph 25 of Schedule 26 to FA 2002.
1631.Generally accepted accounting practice may permit a credit or debit of an income nature to be included in the value of a fixed capital asset or project. If this happens, the credit or debit bypasses the statements mentioned in section 597. This section overrides that treatment, except in the cases mentioned in subsections (3) and (5).
1632.Subsection (5) prevents any debit being taken into account under this Part that writes down the value of the asset or project in question, or creates a reserve for amortisation or depreciation of that asset or project, so far as the write down etc is attributable to a debit brought into account under this section. As this section overrides the accounts treatment of the capitalised debit, this rule in this subsection prevents a double deduction should the asset or project be written down, or a reserve created for its amortisation or depreciation, whether in the same or a later period, if the amount taken to profit and loss is attributable to the amount brought into account under this section.
1633.The source legislation for subsection (5) refers to “so much of any amortisation or depreciation as represents a writing off of the interest component of the asset”. The rule is identical to that in the equivalent rule for loan relationships (section 320(6)). But the “interest component” of the asset refers to something that is dealt with by the loan relationships provisions and has no relevance to the derivative contracts provisions. The emphasised words have therefore not been reproduced in this section. See Change 65 in Annex 1.