FRS102 & Investment Property

TreadStone

I'll try to keep this brief.

Currently preparing y/e accounts 30/06/17. Company is carrying an investment property (flat/apartment) circa £250k cost.

No previous revaluations have been carried out.

Directors are now saying this has (had) a value at 30/06/17 of approx £300k.

So an uplift of £50k required with a credit to the P&L. Deferred tax provision of £9500k (£50k @ 19%).

However, this assumes no adjustment for the previous year.

The question: Should I be making adjustments for 2016yr ? ie request an approx valuation @ 30/06/16 and adjust last year accordingly then follow on with the changes for the most current year ?

This is the first Co I've dealt with that requires investment property adjustments so would appreciate any input from those with slightly more experience.

Company does not qualify as micro.

Cheers

reader

According to the AAT fair value revaluations should be done and any fair value gains or losses should be taken to the P&L:

https://www.aatcomment.org.uk/accounting-for-investment-property-under-frs-102/#

reader

It's probably best not to use micro as you would be required to split the investment proerty cost into land and buildings and then depreciate the buildings (rather than adjust for the fair gain).

TreadStone

I've read that article thanks.

Can't use FRS105 anyway as the company doesn't qualify. It would have saved the hassle had it done so.

What I need confirmation on is can we just revalue for the current year and enter an amount for deferred tax or does 2016yr need to be adjusted in comparatives ?

reader

Didn't you do a revaluation in the 30/06/2016 accounts anyway? Under the old FRSSE's?

If not, the yes, you would need to do a revaluation for 30/06/2016 and restate the comparatives otherwise the comparatives would be misleading to the user of the financial statements.

The article deals with adjustments in the prior year.

reader

Adjustments in the prior year
At the year-end 31 December 2015, the investment property had increased in value by £20,000. The entries under previous UK GAAP would have been:

Dr Investment property £20,000
Cr Revaluation reserve £20,000

Under FRS 102, fair value gains and losses are taken to profit and loss and therefore a prior year adjustment will have to be put through at 31 December 2015 as follows:

Dr Revaluation reserve £20,000
Cr Profit and loss £20,000

Additional deferred tax will also have to be brought into account amounting to £3,400 (£20,000 x 17%) as follows:

Dr Tax expense (P&L) £3,400
Cr Deferred tax (B/S) £3,400

https://www.aatcomment.org.uk/accounting-for-investment-property-under-frs-102/#

TreadStone

Looking at the file, there was no revaluation at 30/06/16 as the Directors deemed any increase in value to be negligible so the figures were untouched.

I'm now thinking that we need only enter the revaluation for the current year as any prior year adjustment would be based on assumptions.

TreadStone

On another note,

Should the investment property be shown within Tangible Fixed Assets on the BS (with a separate note) ?

It's currently shown separately under Fixed Asset Investments but I'm of the opinion it should be moved.

As our software doesn't have an actual nominal set-up as "Investment Property", I seem to have 2 options:-

1. Move it to Leasehold Property & add a note on the accounts.
2. Create a new nominal within PPE so it appears in the correct place within tangibles.

Wow, I feel really thick asking this....

reader

No, the investment property should not be shown as tangible fixed asset or fixed asset investments. It should be shown as investment property. You should have this account within your chart of accounts.

Can't you create an investment property around the fixed asset investment region?

What software do you use?

TreadStone

I believe that Investment Property is indeed shown within Tangible Fixed Assets.

I just need to find a place for it within my nominal groupings.

We use Sage Accounts Production.

reader

On the balance sheet, investment property should appear under the title "Fixed Assets" in an account called "Investment property" and there should be a note.

The note should be in the accounting policies section and should read: "Investment property is shown at most recent valuation. Any aggregate surplus or deficit arising from changes in fair value are recognised in profit or loss"

TreadStone

I've been onto Sage support and there is no nominal for Investment Property so I need to change an existing one or create a new one....