Just met with a new client. This is the first year he no longer qualifies as a micro company and so is required to report under FRS 102 (turnover £785k and 12 employees).
Under FRS 102, I am right in saying that investment properties must be revalued each year with the credit going to P+L (not revaluation reserve). If so the company has 2 investment properties. As they have previously not had a requirement to be revalued there is a considerable gain on the properties which if credited to the P+L would substantially increase his tax bill for the year to the extent that I would place a real strain on his cash reserves and as he has mentioned "what's the benefit for me?".
The rest of my clients are micro entities so I am a bit unfamiliar with additional reporting requirements, however on reading FRS 102 l think the gain should go to the P+L? Would you agree?
Replies (5)
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By the way, the requirement for annual revaluation of investment properties is not new - far from it - all that changes with FRS102 is where the credit goes and the requirement to provide for deferred tax on it. Yes I know that neither of those feature in micro-entity accounts, but they are quite new. Surely your client must have been revaluing his investment properties before he started doing micro entity accounts.
Yes - current year revaluation goes to P&L
I agree that current year unrealised revaluation gains/losses will go directly to the P&L under FRS102.
As the others have said, these gains would not be taxable as they are unrealised. No property has been sold on which there would be a taxable gain.
Not a requirement, but an option
Revaluation is no longer an absolute requirement under FRS 102. If the fair value of the investment property can't be measured reliably and/or there's no benefit to the business of adopting fair value, then depreciated cost can be used - see section16.1