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Big changes in accounting rules on investment property.

Important changes in the accounting treatment of investment properties will come into effect in 2005, say accountants and business advisers PKF.

Advisory manager Perizad Dalal said: "Property investment companies could see increased volatility in the profit and loss account caused by changes in market values. 2005 may seem like ages away; however companies have to present at least one year's comparative information.

"This would mean restating the opening balance sheet for the comparative period - for December 31 year-ends, this would be December 31, 2003, barely nine weeks away."

The changes follow an EU regulation which will require listed and Aim companies to adopt international accounting standards (IAS) in their consolidated financial statements for periods starting on or after January 1, 2005. Other companies will be permitted to adopt IAS if they wish. Under IAS rules an entity may choose either fair value (with no depreciation charge) or depreciated cost as the basis for measuring investment property in the balance sheet.

Where fair value is used, gains and losses arising on annual revaluation of investment property will be taken to the profit and loss account.

Where depreciated cost is used the profit and loss account will instead bear an annual depreciation charge.

This treatment contrasts with current UK requirements under which investment property must be shown in the balance sheet at open market value.

Gains and losses arising on changes in market value are not reflected in the profit and loss account but are taken to a separate revaluation reserve unless a deficit (or its reversal) is expected to be permanent.
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Title Annotation:Features
Publication:The Journal (Newcastle, England)
Date:Nov 12, 2003
Words:260
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