FPCOB 15.9 Calculation of core capital resources

1

Share capital

1This must be fully paid and may include:

(1)

ordinary share capital; or

(2)

preference share capital (excluding preference shares redeemable by shareholders within 2 years).

2

Capital other than share capital (for example, the capital of a sole trader, partnership or limited liability partnership)

(1)

The capital of a sole trader is the net balance on the firm’s capital account and current account.

(2)

The capital of a partnership is the capital made up of the partners’:

(a)

Capital account, which is the account:

(i)

into which capital contributed by the partners is paid; and

(ii)

from which, under the terms of the partnership agreement, into which capital contributed by the partners is paid; and from which an amount representing capital may be withdrawn by a partner only if:

(A)

the person ceases to be a partner and an equal amount is transferred to another such account by their former partners or any person replacing them as their partner, or

(B)

the partnership is otherwise dissolved or wound up; and

(b)

Current accounts according to the most recent financial statement.

For the purpose of the calculation of capital resources in respect of a defined benefit occupational pension scheme:

(1)

a firm must derecognise any defined benefit asset;

(2)

a firm may substitute for a defined benefit liability the firm’s deficit reduction amount, provided that the election is applied consistently in respect of any one financial year.

3

Reserves (Note)

These are (subject to the Note) the audited accumulated profits retained by the firm (after deduction of tax, dividends and proprietors’ or partners’ drawings) and other reserves created by appropriations of share premiums and similar realised appropriations. Reserves also include gifts of capital, for example, from a parent undertaking.

For the purposes of calculating capital resources, a firm must make the following adjustments to its reserves, where appropriate:

(1)

a firm must deduct any unrealised gains or, where applicable, add back in any unrealised losses on debt instruments held, or formerly held, in the available-for-sale financial assets category;

(2)

a firm must deduct any unrealised gains or, where applicable, add back in any unrealised losses on cash flow hedges of financial instruments measured at cost or amortised cost;

(3)

in respect of a defined benefit occupational pension scheme:

(a)

a firm must derecognise any defined benefit asset;

(b)

a firm may substitute for a defined benefit liability the firm’s reduction amount, provided that the election is applied consistently in respect of any one financial year.

4

Interim net profits (Note)

If a firm seeks to include interim net profits in the calculation of its capital resources, the profits must (subject to the Note), be verified by the firm’s external auditor, net of tax, anticipated dividends or proprietors’ drawings and other appropriations.

5

Revaluation reserves

[Editor’s note: Deliberately left blank.]

6

Subordinated loans/debt

Subordinated loans/debt must be included in capital on the basis of the provisions in this chapter that apply to subordinated loans/debts.

Note: Reserves

Reserves must be audited, and interim net profits, general and collective provisions must be verified by the firm’s external auditor unless the firm is exempt from the provisions of Part 16 of the Companies Act 2006 (section 477 (Small companies: conditions for exemption from audit)) relating to the audit of accounts.

1

Investments in own shares

2

Investments in subsidiaries (Note 1)

3

Intangible assets (Note 2)

4

Interim net losses (Note 3)

5

Excess of drawings over profits for a sole trader or a partnership (Note 3)

Notes:

1. Investments in subsidiaries are the full balance sheet value.

2. Intangible assets are the full balance sheet value.

3. The interim net losses in row 4, and the excess of drawings in row 5, are in relation to the accounting period following the date as at which the capital resources are being computed.