Route 102 – One man’s year-long journey……Day 60

To mark this momentous year for UK GAAP, I'm embarking on a mission to work my way through FRS 102, reading a portion on each working day of 2015 and writing a short blog entry on my thoughts and musings (be they few or many).

Day 60 (1 Jun)

A new month, a new season (at least according to some) and, for good measure, a new section of FRS 102 today. I've returned from a gruelling half-term week off work and delighted to report that we progress to a key topic within new GAAP: how to deal with investment property.

Now, this topic raises more than a few eyebrows because there are some fairly controversial changes to investment property accounting. And the standard doesn't mince around - it dives straight into the controversy in the first paragraph:

16.1 This section applies to accounting for investments in land or buildings that meet the definition of investment property in paragraph 16.2 and some property interests held by a lessee under an operating lease (see paragraph 16.3) that are treated like investment property. Only investment property whose fair value can be measured reliably without undue cost or effort on an on-going basis is accounted for in accordance with this section at fair value through profit or loss. All other investment property is accounted for as property, plant and equipment using the cost model in Section 17 Property, Plant and Equipment and remains within the scope of Section 17 unless a reliable measure of fair value becomes available and it is expected that fair value will be reliably measurable on an on-going basis. (my emphasis).

See what it's done? Before we've even got into the section, FRS 102 diverts away from section 16 any investment property whose fair value cannot be measured reliably 'without undue cost or effort on an on-going basis'; instead such property is, effectively, treated as a trading property under s17. Now, this is in stark contrast to SSAP 19, which presented a single approach applicable to all investment property, and it's provoking a lot of discussion as to the meaning of the phrase 'undue cost or effort' and the real-world approach to such assets.

So tomorrow we'll begin to tackle this issue...

P.S. If you missed the last instalment click here