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Investment Property or Freehold

Posted by lisasp PM | on Tue, 16/03/2010 - 13:45  856  2 comments | report

A company owns two commerical units which in the past have been used by themselves as classed as Freehold property in the accounts.  They now only use one and rent the other out to other companies and expect that this will be the case from now on.  Should this now be reclassified as an investment property or is it ok to leave it as freehold property in the accounts? 

 

Thanks

Comments
Euan MacLennan's picture

Investment property

Euan MacLennan | Tue, 16/03/2010 - 16:11 | Permalink

Yes - you should reclassify it as an investment property and follow the appropriate accounting standard, which means that you show it at its current market value and do not depreciate it.

Similar situation; what do I do with depreciation charged previo

Brian Mason | Tue, 13/04/2010 - 13:03 | Permalink

I have a similar situation to that mentioned above. My client bought a property which it occupied for it's own trade. This was depreciated over 50 years.

The company has just ceased it's trade but has retained the property and let it, in full,  to 3rd parties. Clearly the property is now an Investment Property and should be shown as such within the accounts and carried at market value, rather than historic cost.

My question is do I:

  1. Reverse the depreciation, charged in previous years, to the profit and loss account in this financial year and then uplift the historic cost to market value by creating a revaluation reserve.
     
  2. Just increase the carrying value (historic cost less accumulated depreciation) to market value with the corresponding credit to revaluation reserve.

These options will produce different figures of Revaluation Reserve and Profit and Loss Reserve but I cannot see which is correct!