Commentary on Sections Overview Overview Section 349: Application of amortised cost basis to connected companies relationships
1131.This section provides that where a loan relationship is a “connected companies relationship” (the parties to a loan relationship are connected) both parties must use the same basis of accounting – the amortised cost basis rather than the fair value basis. It is based on section 87(1) and (2) of FA 1996. The same basis of accounting ensures both that the value of the loan cannot be artificially depressed and that debits in the one company are matched by credits in the other.
1132.In subsection (2) “for the period” has been added for clarification. The words do not appear in section 87(2) which this subsection rewrites.
1133.Subsection (3) makes the requirement for amortised cost basis subject to section 454 (reset bonds) which requires fair value accounting to apply. See Change 57 in Annex 1.