Use FRS102 transitional relief for deemed cost?

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We are looking at whether to use the transitional relief under FRS102 35.10 c/d, and use either a prior GAAP valuation or Fair value at the date of transition as deemed cost of a property. What is the general thought or best practice here? It means 'regular' future professional valuations not necessary but there are then the considerations of depreciation and future impairments etc anyway, also may miss out on potential uplifts to the balance sheet if the property value goes up as now using the cost model? 

Also, if using fair value, are previous directors valuation sufficient if considered reasonable and no changes since last professional valuation?

Any thoughts appreciated. Thank you

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John Toon
By John Toon
14th Nov 2017 17:41

What does your client want to do?

1. Take a balance sheet uplift (assuming property is worth more than book value) less deferred tax. This might help with bank finance, credit worthiness etc. Potential downside is additional depreciation but this depends on your assessment of residual value (different under FRS 102 than old GAAP).

2. Carry on as normal.

3. 3rd option deliberately ignored.

Director valuations are satisfactory as long as they are reasonable and meet the FRS 102 requirements. If company is subject to audit, unlikely given timing, then this can be an issue for reliability reasons.

Also be careful on use of prior valuations as FRS 102 uses the IFRS valuation methodology which differs from value in use used in old GAAP.

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