Changes to investment property under FRS 102 & FRS 105

When it comes to financial reporting requirements under the old UK GAAP and new UK GAAP (FRS 102), one area of change that will affect many accountants is investment property. Accounting treatment of investment property is somewhat different to the old UK GAAP, and significant changes to the measurement and review of investment property have been introduced by the Triennial review.

Under the old UK GAAP (SSAP 19), investment property was defined as ‘an interest in land and/or buildings’, and included property that was held for its investment potential, owned and occupied by a company for its own use, and/or let to and occupied by another group company.

Investment property under the old UK GAAP was subject to mandatory revaluation to open market value, but it did not address situations where there was undue cost or effort to value the investment property.

Investment property under FRS 102, however, is defined as:

1. Property (land or a building, part of a building, or both) held by the owner or lessee under a finance lease to earn rentals or for capital appreciation or both, rather than for:
   1. use in the production or supply of goods or services for administrative purposes or;
   2. sale in the ordinary course of business.

As a result, some unlicensed property held by the owner and property leased to another group of companies, are now considered investment property and measured at fair value and revalued at each reporting date. If a property meets the definition of an investment property, it will be held as such.

There’s also the treatment of gains to consider. The old UK GAAP measured treatment of gains via investment property as ‘not in profit or loss’ (i.e. in statement of recognised gains and losses), whereas FRS 102 measures in ‘profit or loss’ and for FRS 105, it is ‘not applicable’.

These are but a few areas where the reporting and evaluation of investment property under the old UK GAAP differs to FRS 102 and FRS 105. There are also changes to the recognition and measurement of investment property, the presentation of gains, the impact on distributable profits, deferred tax, and transfers to and from investment property to consider.

Small companies and micro-entities with investment properties on their balance sheet will no doubt be affected by these changes to the review and measurement of investment property – and therefore understanding the rules and reporting requirements will prove essential!

In our eBook on investment property, we assess and review the key issues arising from changes to FRS 102 and FRS 105 – and how the practical application of the requirements for each correspond to reporting elements.  

Download our free eBook by clicking here.