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FO 19: Calculation of outstanding accrued balance: consideration for discharge
or “How to calculate money owed on financial arrangements when companies merge”
You could also call this:

“How to calculate the remaining balance when amounts are forgiven during a business merger”

When you’re involved in a financial arrangement and an amalgamation happens, you need to figure out the outstanding accrued balance. You can do this using a special formula.

The formula adds up several things:

First, you include the money you paid for the financial arrangement. Then, you add the income you’ve earned from it, minus any expenses you’ve had, for all the years before the current one. You also need to add the income you’ve earned in the current year up to the date of the amalgamation. From this total, you subtract the expenses you’ve had in the current year up to the amalgamation date. Finally, you subtract any money that was paid to you under the arrangement before the amalgamation.

For the current year’s income and expenses, you can use the same method you’ve been using in previous years to spread them out. If this is your first year involved in the arrangement, you can choose a method that would have worked if the year had ended just before the amalgamation.

This calculation helps determine the financial position of the arrangement at the time of the amalgamation.

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Next up: FO 21: When amalgamating companies are parties to financial arrangements: economic groups

or “Rules for settling financial agreements when related companies merge”
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Part F Recharacterisation of certain transactions
Amalgamation of companies

FO 20Calculation of outstanding accrued balance: amounts remitted

  1. In section FO 18(7), the outstanding accrued balance is calculated using the formula—

    consideration + prior income + income accrued in year − expenditure accrued in year − consideration paid.

    Where:

    • In the formula,—

    • consideration is the consideration paid by the party under the financial arrangement:
      1. prior income is the income that the party derives less the expenditure that it incurs under the financial arrangement calculated under either a spreading method or section EW 53 (Adjustment required) in all income years other than the current income year from the time the financial arrangement was entered into:
        1. income accrued in year is the income that the party accrues from the financial arrangement for the period from the first day of the income year in which the amalgamation occurs to the date of the amalgamation, calculated either—
          1. using the spreading method used to calculate income and expenditure under the financial arrangement in the income year, if the party was a party to the financial arrangement in an earlier income year; or
            1. using a spreading method that the party chooses, if the method could have been used if the income year had ended immediately before the amalgamation:
            2. expenditure accrued in year is the expenditure that the party accrues under the financial arrangement for the period described in paragraph (c) and calculated as described in that paragraph:
              1. consideration paid is the consideration paid to the party under the financial arrangement before the date of the amalgamation.

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                Notes
                • Section FO 20(1): amended, on , by section 116 of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).