Hi
I have a new client - This is a small company that only owns a building and charges rent on it at a value of £6,000 per year.
What i want to confirm is that it is my understanding that this will come under the new FRS102 rules from next year and will need to be revalued each year? This will be a massive cost to the client.
Will the company have to have an external valuation each year or can it make an internal assessment?
Replies (6)
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FRS102 brings with it many changes but the requirement to carry investment properties at a current valuation is not one of them. That requirement has been with us for many decades - see SSAP19.
Luckily, though, FRS102 (just as SSAP19) does not require external valuations to be done on investment properties. The accounts, though, do have to show a true and fair view so the valuation must be kept up to date, and you do have to disclose who valued it and how. I'd suggest having an external valuation every 5 years, and, unless something happens to make you think that the valuation might have significantly changed in the year, do it yourselves in the intervening years.
But surely as an investment property its investment value is a function of the rent, lease term, lease conditions, financial standing of the tenant and prevailing market conditions for similar investment property.
My really crude rule of thumb is that it will tend (subject to repairing obligations) to be somewhere between 13 times and 8 times the passing rent, where I would pitch would depend on whether Prime, Secondary, Tertiary or real slum.
The other area which may impact is its discounted value in alternative use (We have a couple of offices that as offices are possibly worth about £80k-90k each, with residential planning more like £140-150k. It would be rash to allow for the full aternative use without planning but the straight investment valuation possibly might be augmented by a degree of hope value in such a scenario where planning was likely.
I would be surprised if it is still as low as the 2001 valuation but I guess in some locations that might be possible, just not here.
Have micro-entity accounts been considered?
It looks to me that the company would be small enough to apply the micro-entity accounting standard. If adopted assets are shown at cost & mustn't be re-valued
- so problem solved.