Could you please help me with the following?
There is a limited company, a special purpose vehicle for a buy-to-let residential property. It qualifies as a micro-entity and uses FRS 105. The investment property is a freehold residential house with the land. The cost is £250k.
Under FRS 105, the investment property should be depreciated.
I believe the land is not depreciated, is it correct? How can I separate the cost of the land from the cost of the building for this purpose?
The residual value definition in FRS 105 is ‘The estimated amount that an entity would currently obtain from disposal of an asset, after deducting the estimated costs of disposal, if the asset were already of the age and in the condition expected at the end of its useful life.’
I believe that the age would not affect the amount obtained on the disposal of the property at all. Would this be a valid assumption for the calculating the residual value?
The ‘condition expected’ condition – Does this assume that the property would not be repaired, painted, etc till the end of its useful life? Because the maintenance of the property will be supporting it in the same condition as of today. If the assumption is that the property is in the same condition (i.e. maintained) then ‘condition expected’ also would not affect the amount obtained on the disposal of the property.
Are there any recommendations on the useful life of a freehold residential property?
Could you please advise what would be the correct approach for the accounting of the property?
Does it need to be depreciated if the above assumptions are valid?
Would it be incorrect to carry this property on the balance sheet at its original costs while the assumptions are valid?
Can the company claim Annual Investment Allowance or Writing down Allowance of the purchase of the buy-to-let investment residential property?
Could you please advise on the part of the relevant regulation or legislation applicable to my above questions?