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