Accounting Transaction for Value of Freehold

Katie2014Katie2014 New MemberPosts: 29MAAT, AAT Licensed Accountant
Hi all

I have posted this in the MIP section however I haven't had any responses yet so I wondered if anyone here could possibly help me please...

I have a query that I am hoping someone can clarify with me..... a company limited by guarantee was set up to purchase the freehold of a property. The building is 3 flats with 3 separate owners and they all now own the freehold together.

I understand that the value of the freehold should be held on the balance sheet as investment property, however I cannot get my head around the accounting transaction needed. The value, say for example, £18000, would be debited to the balance sheet as a tangible asset and then would the corresponding credit be to say a 'Capital Reserve Account'? Even though the value of the freehold is not actual cash and would never be distributable to the directors of the company?

Its been a long time since I have dealt with anything like this and I cannot get it clear in my mind!

All help and advice appreciated, many thanks :)

Best Answer

Answers

  • Katie2014Katie2014 New Member Posts: 29MAAT, AAT Licensed Accountant
    Hi all

    I have a query that I am hoping someone can clarify with me..... a company limited by guarantee was set up to purchase the freehold of a property. The building is 3 flats with 3 separate owners and they all now own the freehold together.

    I understand that the value of the freehold should be held on the balance sheet as investment property, however I cannot get my head around the accounting transaction needed. The value, say for example, £18000, would be debited to the balance sheet as a tangible asset and then would the corresponding credit be to say a 'Capital Reserve Account'? Even though the value of the freehold is not actual cash and would never be distributable to the directors of the company?

    Its been a long time since I have dealt with anything like this and I cannot get it clear in my mind!

    All help and advice appreciated, many thanks :)

  • Katie2014Katie2014 New Member Posts: 29MAAT, AAT Licensed Accountant
    Thank you for your reply.

    The articles of association do not actually state anything about it. I did originally check them for guidance but the only mention of the freehold in them is one point which states that one of the company's objects are:
    'to acquire, hold, manage and administer the freehold or leasehold property or properties known as xxx including without limitation to the generality of the foregoing any common areas, roads, access ways, footpaths, parking areas, drains, sewers, lighting, security and associated facilities ("the managed property") either on its own account or as trustee, nominee or agent of any other company or person.'

    As they didn't offer any guidance I was unsure about how to proceed?!
  • CeeJaySixCeeJaySix Well-Known Posts: 645Registered
    How did the company purchase the freehold?
  • south59south59 Posts: 22Registered
    Therein lays the answer
  • Katie2014Katie2014 New Member Posts: 29MAAT, AAT Licensed Accountant
    Thank you both for your answers. This is what I am trying to find out about as the transactions aren't quite clear so I am waiting for clarification on this and a few other points before I proceed.
    Thank you again for your replies.
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