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| Old GAAP | FRS 102 | Further Comment On Differences |
| Investment Property | Investment Property (S.16) | |
| Included in balance sheet at open market value. | Carried at fair value (in line with Section 11.27 to 11.32) if it can be measured without undue cost or effort. Fair value should equate to open market value, therefore no differences are expected. | Fair value and open market value should equate to the same amount therefore no differences are expected. |
| Cost model not permitted. | Carried at cost on the basis that fair value cannot be measured without undue cost or effort or cannot be estimated reliably, carried at cost within PPE. However, where open market value was able to be determined prior to transition, it is likely fair value will have to be used unless in exceptional circumstances on transition. | While Section 16 allows investment property to be carried at cost where the fair value cannot be determined without undue cost or effort, where an asset was previously carried at market value under old GAAP, it would be unusual for the entity to revert to a cost basis as the entity was able to value it at market value in prior years. In the vast majority of cases on transition the property will be valued are fair value. |
| Gains and losses are recognised in the STRGL unless they are permanent deficits, where permanent, they are posted to the P&L (differs for insurance companies and pension funds). Deferred tax was not required to be accounted for unless the entity had entered into a binding sale. | Gains and losses are recognised in the P&L (FVTPL) together with the related deferred tax impact (as required under Section 29). On transition an adjustment will be required to transfer the revaluation reserve to profit and loss reserves. | On transition to FRS 102 an adjustment will be required to transfer the revaluation reserve to a non-distributable profit and loss reserve. As deferred tax was not required to be accounted for under old GAAP a transition adjustment will also be required to reflect this deferred tax. The deferred tax rate to be used is the capital tax rate. Where a revaluation movement was recognised since the date of transition (i.e. in the comparative year of the first set of financial statements), there will need to be a reclassification adjustment to reclassify this from the OCI to the profit and loss account. See attached an example illustrating (the above points) the transition adjustments required (Example 52 – Fair Value And Tax Adjustments). |
| Property rented to group companies must be classified as PPE. | Property rented to group companies must be classified as investment property where it meets the investment property definition in Section 16. Where such a circumstance exists, it may require a transition adjustment such that it is carried at fair value (and the related deferred tax impact). | Where an entity leases property to another member of the group on transition this will require the property to be reclassified from property, plant and equipment to investment property and the property then to be shown at fair value if fair value can be measured without undue cost or effort (if it cannot be measured then it is classed as PPE). Deferred tax is also required to be recognised on the fair value adjustment. See attached an example illustrating the transition adjustments required. (Example 53 – Property Leased To Other Group Companies Classified As Investment Property). |
| A property can only be classified as an investment property if the property was constructed/complete – property under construction (which was not inventory) was classified as PPE. | Self-constructed property which is likely to meet the definition of investment property may be accounted for as an investment property during construction (Section 16.5). Therefore, on transition this may require a reclassification adjustment and possibly a charge/credit to profit and loss reserves (and the related deferred tax) for any change required to bring it to fair value. | There is a possibility of a transition adjustment for a reclassification adjustment and possibly a charge/credit to profit and loss reserves (and the related deferred tax) for any change required to bring it to fair value. |
| No detailed guidance in SSAP 19 in relation to mixed use property. Therefore, diversity in practice as to how this was treated. | Mixed use property that meets the definition of investment property in Section 16, should be accounted for as an investment property (subject to undue cost or effort) where the portion related to that element of the property can be apportioned and reliably measured. A transition adjustment may be required as detailed above. | A transition adjustment may be required to reclassify the investment property element from PPE to investment property, together with an adjustment for a change in fair value. The journals would be similar to those shown in Example 53. |
| No option available, if the property interest held under operating lease met the definition of an investment property it must be valued at open market value. | Option to use fair value on a property by property basis for property interests held under operating leases (which meet the definition of investment property and the leasee can measure the fair value of the property interest). | When an entity elects to discontinue treating an operating lease as an investment property, a transition adjustment will be required. It is expected the number of entities taking this option will be few and entities may instead apply this option going forward. |
| Investment property held on a lease with an unexpired term of 20 years or less to be depreciated over the remaining term. | Investment property can never be depreciated regardless of the term of the lease. As a result a transition adjustment may be required to reflect the fair value and reverse any previous depreciation charged. | Where an entity holds such a property, a transition adjustment may be required to reflect the fair value. It will be accounted for similar to any other investment property for value of adjustment including the deferred tax effect. |
| No specific reference to public benefit entities. | Properties held by public benefit entities which meet the definition of investment properties have to be accounted for under Section 17 – PPE. | Where public benefits entities have previously accounted for such property as investment properties a transition adjustment will be required. |
| No deferred tax to be recognised on investment properties. | Section 29 requires deferred tax to be recognised in the profit and loss on the difference between base cost including indexation (where indexation does not create a loss) and fair value at the sales rate of tax. | See attached an example illustrating (the above points) the transition adjustments required (Example 54 – Fair Value And Tax Adjustments). |
| Not applicable. | Section 35.10 – exemption to allow a first time adopter to elect to use a previous GAAP revaluation of an investment property at or before the date of transition as its deemed cost or alternatively to use fair value as deemed cost. This exemption is unlikely to be applied in practice where open market could be determined. | As investment properties were required to be stated at market value under old GAAP, this exemption is unlikely to be of benefit. |
| Open market value to be updated every 5 years at a minimum and in between where indicators of impairment exist. | Fair value required to be measured at each reporting date. | FRS 102 requires the investment property to be measured at fair value at each reporting date (unless the previous carrying amount is not materially different where old GAAP mandated every 5 years at a minimum). |
| These disclosures were not required under SSAP 19. | Similar disclosures to that required under SSAP 19 however in addition, the below disclosures are required: · the methods and significant assumptions applied in determining the fair value of investment properties; · the existence and amounts of restrictions on the reliability of investment property or the remittance of income and proceeds of disposal; · contractual obligations to purchase construct or develop investment property or for repairs, maintenance or enhancement; · a reconciliation between carrying amounts at beginning and end of the period to include: a) showing transfer to property plant and equipment where the fair value cannot be measured without undue cost or effort; b) Net fair value adjustments posted to the profit and loss account. | These are merely disclosure adjustments which need to be incorporated into the financial statements. See example of the disclosures attached (Example 55 – Extract From The Notes To The Financial Statements – Note On Investment Property). |
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