Revaluation of fixed asset investments

Revaluation of fixed asset investments

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Hi,  I have a new client who owns a farm and farm cottages through a limited company.  The land andd buildings were professionally valued in 2001 (£1m) and 2012 (£2m).  The accounts for last year - 31 December 2013 - show the assets at the 2001 revaluation, with a Revaluation reserve from the 2001 valuation and no note referring to the fact that deferred tax has not been provided or any indication of potential tax.

My client has confirmed that the previous accountant was probably not advised of the revaluation.  So, I have the situation where I have a valuation from 2 years ago which should be reflected in the accounts.

The company qualifies as a smaller entity.

Should I do a prior year adjustment?

Any advice would be appreciated.

Replies (12)

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By johngroganjga
11th Aug 2015 13:02

Why do you say the 2012 valuation "should be" reflected in the accounts. Yes of course this is a an option available to the company, but they seem to have chosen not to exercise it when the 2013 accounts were being prepared. If they wish to exercise that option now then good for them. But why are you going down the route of saying that the absence of any reference to the new valuation in last year's accounts was an error?

Presumably you are not doing micro-entity accounts. 

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By Clare Chapman
11th Aug 2015 13:12

Because the previous valuation from 2001 had been included in the accounts so I am working on the basis of consistency of treatment.

The client confirmed that their previous accountant had probably not been told of the revaluation by mistake rather than for any other reason. The previous accountant has retired but I could try and ask him if you are suggesting he may have made a decision not to revalue.

I can't do micro-entity accounts because of the balance sheet total but I can file abbreviated accounts.

 

 

 

 

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Replying to AndrewV12:
paddle steamer
By DJKL
11th Aug 2015 14:28

Surelt the decision to revalue

Clare Chapman wrote:

Because the previous valuation from 2001 had been included in the accounts so I am working on the basis of consistency of treatment.

The client confirmed that their previous accountant had probably not been told of the revaluation by mistake rather than for any other reason. The previous accountant has retired but I could try and ask him if you are suggesting he may have made a decision not to revalue.

I can't do micro-entity accounts because of the balance sheet total but I can file abbreviated accounts.

Surely the decision to revalue/ not revalue was not that of the previous accountant it was that of the directors?

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By johngroganjga
11th Aug 2015 13:29

I asked about micro-entity accounts because I understand revaluations are forbidden in them, so if you were doing them you would have to reverse the 2001 revaluation, never mind ignoring the 2012 one.

With respect I think you are over-thinking. If your clients want the 2012 property valuation reflected in the 2014 accounts than I would just get on with it. 

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By Clare Chapman
11th Aug 2015 14:50

Perhaps i am over-thinking it.  The valuation is dated December 2012, the accounts are for the year to 31 December 2014 so the revaluation will appear as a movement in the TRGL statement in 2014.

I think that is inconsistent information but I can't change the date of the valuation just to make it easy for myself.

Stepping back, the first question is - do I need to reflect the new valuation because it has been done?

If I do, the second question is, does it matter if the revaluation is shown in 2014 even though it is dated 2012?

If it doesn't, then I just do the accounts with a revaluation in 2014, the note will say the valuation is 2012.

If it does matter, then do I have to re-state the previous years?

These accounts should be straightforward as the business is the rental of farm cottages, no real change from year to year and the directors just leave it ticking over.  They will look to me for guidance on whether to include the revaluation or not so I want to check my facts before advising them.

 

 

 

 

 

 

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By User deleted
11th Aug 2015 15:04

Accounting policy

To start with I would think that what you need is an accounting policy which must be consistently followed. Obviously that policy should be in line with the standard on which your accounts will be based whether Micro, FRSSE or FRS 102. 

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By johngroganjga
11th Aug 2015 16:03

The answers to your questions, in my opinion. are as follows:

No. But you can and must if the board, perhaps with your advice, say they want it so reflected;No it doesn't matter a bit;Yes that's right;N/a.

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By Clare Chapman
11th Aug 2015 16:10

I agree. 

I agree. 

There is no stated accounting policy in the accounts but there is a revaluation reserve and a note on Investments which states that 'the investment properties are included at open market value based on the 'latest professional valuation carried out by xxxx at 31 December 2001, plus the cost of improvements since this date'.  So, a policy to use market value was established at some point, even if it was not included in the accounts.

To follow FRSSE, I believe I should do a prior year adjustment and restate the comparatives.

 

 

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By Tim 59
11th Aug 2015 16:22

Does your client actively engage in the farming activity occupy the farm house and are the farm cottages occupied by employees? There is a distinction between the accounting for investment properties and the revaluation of fixed assets.  The FRSSE your predecessor  complied with specifically did not require a provision for deferred tax on the revaluation, although this will change in the future. You may wish to refer to the tax consequences in the tax note.

Why not get a current valuation at least it would be relevant. I presume your client has a lending covenant, otherwise I cannot see the benefit of the frequent valuations other than compliance with investment property accounting treatment if relevant.

 

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By johngroganjga
11th Aug 2015 16:23

Up to you what you do but I disagree with the action you are proposing to take, and if your clients asked for my advice ....

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By Clare Chapman
11th Aug 2015 16:49

Tim,

The properties are let at market rent and the land is leased to another farmer so the properties are investments rather than fixed assets.  There is no lending covenant and I have not specfically asked them why they got another valuation,  they volunteered the information when I asked for a valuation for their current asset investments.

I appreciate there is no requirement to provide for Deferred tax but there a requirement to note the tax treatment of a revaluation S6.36?

John,  I missed your earlier reply, perhaps I hadn't refreshed the page before I sent my later reply.....  so thank you for clarifiying.

I will see what the Board want.

Thanks for all the help.  It can be trying working as a sole practitioner sometimes so this forum is really helpful.

 

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By Tim 59
11th Aug 2015 17:01

Unless you are early adopting the new standards, have a look at SSAP19 and the FRSSE re investment properties disclosures.

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