1st year reporting under FRS 102 - Property revaluation

1st year reporting under FRS 102 - Property...

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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 EASy
08th Oct 2015 13:17

Errrr...
Why will it increase his tax 'bill'?

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By johngroganjga
08th Oct 2015 13:28

Unrealised revaluation surpluses are not taxable.

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By johngroganjga
08th Oct 2015 13:40

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.

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By StartUpAcc
08th Oct 2015 14:31

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.

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By mely
08th Oct 2015 16:22

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

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