Accounting for investment property under FRS 102

Under FRS 102 I am required to revalue property held for investment every year. This then has to be shown in profit and loss. How do I actually do that in Quickfile? and how do I ensure the nominal but unrealised gain doesn’t go through my accounts at tax time as a tax chargeable profit?

Hi @Mark_Gahagan

Whilst we cannot provide accounting or professional advice, we can explain the process in generic terms:

First, create a new nominal on the Profit and Loss account with the following Account Name:
“Investment Property Fair Value Adjustments” and add “Fair value gain/loss on investment property” in the note section, as shown below:

Second, if you do not have a separate nominal, create a new nominal on the Balance Sheet called “Investment Property” as shown below:

You may need to journal the Investment Property out of the Freehold Property nominal code and into the new Investment Property nominal, as shown below:

Fair value gain on investment property example:
A Ltd has an investment property and the property is measured at fair value at each reporting date. Its fair value at 31 December 2019 was £100,000 and its fair value at 31 December 2020 was £120,000. The change in fair value is recognised as follows:

When completing the year end accounts and company tax return, your accountant will need to account for any deferred tax implications arising from the change in fair value.

The recognition of the change in the fair value in the Profit & Loss account will not make those gains immediately chargeable to corporation tax, this will typically arise on disposal of the investment property.

Due to the fair value gains on investment property not being distributable reserves, as these gains cannot be readily convertible into cash (unrealised gains), your accountant may want to ring-fence the gain on a separate nominal under equity in the balance sheet, to distinguish them from reserves which are distributable.

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Thats a great help. Thank you

This is not a straightforward topic, so I would definitely make sure you discuss this with your accountant. They will have to “disallow” the gain in the tax comp in order not to include it in the charge to corporation tax. They will also, as @Joe says, need to provide for deferred tax on the gain in the annual accounts.

Hi Thanks. Yes will discuss with accountant at year end. Its just I do our own bookkeeping so wanted to understand how it is accounted for.

Kind Regards

Mark Gahagan

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as an alternative I could deal with this under FRS 105 as we are a micro entity and could elect 105 instead. It appears to me that under this we would only ever value the property at original cost minus depreciation. I cannot work out how to depreciate a freehold residential property which really is useful forever (or certainly will see me out!). I would therefore not depreciate it as it is akin to a perpetual asset. Also if I depreciate it, one day it will be worth nothing, which can’t be right. Is my understanding correct?

I would check with your accountant which accounting standard they have used to date as there are implications for changing. But yes, if you are a micro-entity and qualify for reporting under FRS105, you can do so. There is no revaluation allowed under FRS105, investment properties are carried at cost less depreciation less any impairment losses, like plant & equipment. The depreciation policy is up to you, and should be based on residual value and estimated useful economic life. If this process means there is no depreciation, then don’t charge any. You should review the basis regularly to make sure it is still appropriate.

Thanks I understand now. We’re in the first year of trading so no prior accounting treatment used.
Kind Regards

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