Depreciation on transition to FRS 102

Depreciation on transition to FRS 102

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Section 35.10(d) of FRS 102 permits an entity to use a previous GAAP revaluation at or before the date of transition as the deemed cost.

The entity in question has continued to depreciate the property since revaluation and has transferred the difference in depreciation between historical cost and revaluation from the revaluation reserve to P&L reserve. So it does not appear as though any adjustments are necessary on transition ??

Does this adjustment continue to be made under FRS 102 ??

Is a separate revaluation reserve still acceptable under FRS 102 or does this need to be renamed or consolidated with the P&L reserve keeping a record internally of the amount distributable and non-distributable ??

Many thanks.

Replies (3)

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By John Charman
21st Dec 2017 22:21

Hi there,

I had the same issue with one of my clients a few days ago and called the ICAEW helpline, I was told the following

Yes, a revaluation reserve is permitted under FRS102, so if the transfer between reserves has occurred each year then this is fine. Just to add a further point though. Deferred tax then needs to be accounted for on your revaluation (this gets debited to the revaluation reserve too).

The whole point of this is to consider the view of a shareholder. As long as the distributable reserves are in the same position they would have been in (had the revaluation not taken place). Then you're generally doing something right.

The adjustment that your client is currently doing should continue to be done each year. It's also noted that there should be regular revaluations (whilst the ICAEW didn't specify, my understanding is that every 5 years would be reasonable).

I'm by no means an expert so if anyone else has anything valuable to add then please do!

Regards,

John

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By pdorrington
22nd Dec 2017 02:08

Thanks John I think maybe I have not provided enough information in my post. My understanding is that as the client objects to paying for regular valuations he can switch back to using the depreciated historical cost basis and can use a previous GAAP revaluation at or before the date of transition as the deemed cost at the revaluation date.

The client has continued to provide depreciation since the date of revaluation and has transferred the difference in depreciation between historical cost and revaluation from the revaluation reserve to the P&L reserve.

So on the date of transition my belief is that no transitional adjustments are required other than in respect of deferred tax, as the cost figure in the accounts is already represented by the deemed cost at the revaluation date and the accumulative depreciation since the revaluation date remains unchanged.

Are you able to concur with this ?

Many thanks.

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By paulwakefield1
22nd Dec 2017 08:13

Does this help? - See page 8. I assume these are not investment properties under FRS 102.

https://www.frc.org.uk/getattachment/f0336ca4-46da-41fe-850d-f8e896929e9...(amended-October-2015).pdf

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