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Depreciation on Investment Properties, Long leasehold and Freehold Properties

Depreciation on Investment Properties, Long...

Hi, Just wondering if anybody could clarfying a few points in relation to Depreciation on Freehold, Leasehold and Investment properties in FRSSE accounts:

Investment Properties

My Understanding is that Investment properties are on the balance sheet at their carrying value and are not depreciated.  Therefore in the disclosures to the accounts I include a departure from CA 2006 and we professionally have the properties valued every 5 years and in the interim period the directors can value the properties?

Also if we wished to do so, rather than revalue as above could we opt to depreciate the properties at 2% each year to avoid having professional valuation's every 5 years?

Is a property classed as an investment property for these purposes if its let to a connected party at a market value rent, if not I assume we then follow FRS 15?


If the lease is less than 50 years, then is it ok if we depreciate over the life of the asset on a straight line basis?  What if the lease is more than 50 years?  Is it still ok to depreciate over the life or would we fall into impairment reviews?  If so, who could do the valuations and the timeframe?


In the Frsse it is silent regarding depreciation of Freehold properties, I therefore assume that we then follow FRS 15.  FRS 15 says to depreciate the buildings, but obviously the land is not depreciatable?  Therefore to save time having to split the buildings and the land if not easy ascertainable, would you say that its acceptable to depreciate it all at 2%?  Is it also acceptable to deprectiate at the rate of 1% or would this be frowned upon?

I am aware that depreciation is charged due to the consumption, however in reality if we charge 2% depreciation after a number of years the financial statements wont represent a true and fair position, as per the FRSSE? 

If this turns out to be the case to ensure the statements show a true and fair representation could we revalue, if so would this need to be done by a professional valuer?  Also if we revalue the properties after 10 years, would this constitute a change in accounting policy?  After this revaluation would we then have to revalue every 5 years or could we still continue to depreciate at 2/1% as before?

Thank you in advance for your anticipated response.


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21st Sep 2012 11:16

Is this homework?

Whether it is or not, read the FRSSE, but I will try to give some answers to your exam paper:


Investment properties:

No - depreciation is prohibited by para.6.50, unless it is leasehold with less than 20 years to run.

The definition of investment property excludes a property let to and occupied by another group company, so it depends on the status of your "connected company".



Depreciate over the period of the lease



The FRSSE is not silent about the depreciation of freehold properties.  Like any other tangible fixed asset, para.6.38 says that they should be depreciated down to their estimated residual value on a systematic basis over their useful economic lives.

Para.6.39 says that where a tangible fixed asset can be split into two or more major components, they should be considered separately and that land has an unlimited life and should not be depreciated.

Depreciation of buildings over 50 years is generally considered to be reasonable, but you may consider that the building will have a substantial residual value after 50 years.

If the market value of the property increases, it would be appropriate to revalue and then, continue to depreciate at the same rate on the revalued amount.


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