FRS105 investment property depn period

Under FRS105 what depreciation period are companies using for investment properties?

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Hi all,

FRS105.12 Property, Plant and Equipment and Investment Property states that assets should be depreciated over their useful economic lives and that land and buildings should be accounted for separately.

On a freehold investment property, is there a case for considering that the residual value of the property, with its value being more than the cost, effectively renders the depreciation nil?

Would that be a fair thing to do?

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John Toon
By John Toon
16th Nov 2022 14:25

If that's what your accounting policy says, then yes

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paddle steamer
By DJKL
16th Nov 2022 14:25

Surely residual value of the property element runs to nil, effectively when a building/structure is finished productive use all value rests in the land, in fact the building possibly has a negative value as it has a demolition cost.

If you look at them as two assets, which I think FRS105 wishes you to do, you cannot within FRS105 increase the value of the land above its cost and the building element, having a finite economic life, needs depreciated towards it eventually becoming a pile of dust only useable as site infill.

I get past all these mind games by using FRS102 instead, imho FRS105 is not fit for purpose re Investment Properties.

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Replying to DJKL:
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By paul.benny
16th Nov 2022 14:52

+1

Those who would not depreciate freehold property overlook the requirement in FRS105 12.15 to split out the initial cost.

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Replying to paul.benny:
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By Tax is always taxing
16th Nov 2022 15:49

This chat is giving me flashbacks of when component accounting was introduced for housing associations.
Does FRS105 12.15 not imply that a similar approach should be followed (not suggesting anyone would) - but roof, kitchens, bathrooms, windows etc all have different useful life to the structure of the building itself - and of course the land. Should the original cost be allocated between these original components if you take the standards to the extreme?

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Replying to Tax is always taxing:
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By Bobbo
16th Nov 2022 16:35

That is indeed precisely what that paragraph is saying. Have fun OP

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